The global financial crisis took its toll on the hedge fund-of-funds sector, with the industry shrinking as a result of poor relative performance and investor withdrawals. However according to Preqin research, the sector is entering a period of recovery and adapting to the post-GFC conditions.
The financial crisis forced the hedge fund-of-funds (hedge FoF) sector to adapt in order to remain competitive and gain investors, said Preqin.
“Following the onset of the financial crisis, many fund-of-funds investors wanted greater transparency, and as a result managers increased their offering of managed account versions of their funds,” the research, in its April 2011 hedge fund spotlight, states.
Preqin states the last 12 months has seen a considerable shift in the industry in terms of the distribution of firms by their assets under management (AUM).
The research notes a noticeable shift towards the lower end of the scale, as hedge FoFs with less than $250 million increased from 28 per cent in early 2010 to 35 per cent.
“The most noticeable shift is the decline in the proportion of managers with assets of $2-4.9 billion. The fall in the average funds size over the period was $570 million, from $2.75 billion in 2010 to $2.18 billion in 2011. This is less than half the average fund size in 2009, which was $4.78 billion,” the report read.
In its latest annual hedge fund survey, PerTrac focuses on the new growth the sector is entering, with the study indicating a “rebound” in the market — but not in hegde FoF AUM.
“As we look across the fund universe, one clear area of growth has been in the number of single-manager hedge funds, and we see that momentum continuing in the future. Overall, the study demonstrates a rebound – with the industry as a whole getting closer to prior peaks” said Lisa Corvese, managing director, Global Business Strategy at PerTrac.
However, the research does acknowledge hedge FoFAUM continued to decline; with the funds in the study (the same number as in 2008) having $518 billion AUM in 2010, a 31 per cent decline from the $750 billion AUM reported in 2008.
The single-manager hedge fund universe was in sharp contrat, with PerTrac saying it has largely recovered since the GFC with AUM increasing over 11 per cent over 2009 to $1.6 trillion and just over 1000 new funds launching.
Alongside the decline of hedge FoF AUM, sits the consolidation of the market, which Jeremy Alun-Jones, group managing director of Stenham Asset Management names in the Preqin research as one of the sector’s noticeable changes since the GFC.