A fund of hedge funds (“FoHF”) is an investment vehicle that offers its investors exposure to a portfolio of hedge funds selected by the investment manager of the fund. The investment manager uses his/her knowledge, diligence and expertise to select and manage the hedge fund portfolio, saving his/her investors from the need and the operational and resource commitments to do so. In implementing their investment strategy, FoHFs often utilize financing transactions for various purposes, among them to provide leverage and liquidity. Regardless of purpose, because these funds have no natural life span, the financing transactions typically remain in place for lengthy periods of time. And because of their relatively long durations, these transactions often require amendments to accommodate changes to the fund, transaction or structure of the pledged collateral. While many such amendments are routine in nature and may require limited legal analysis, amendments related to, or arising out of, ce
Hedge funds extended their gains for the year and were up 0.88% during the month of July based on preliminary numbers. Meanwhile, underlying markets, as represented by the MSCI AC World Index (Local), were up 1.64% over the same period. Returns were largely positive across the board with all key regional mandates in the green as emerging market mandates (excluding Eastern Europe & Russia) delivering the best returns. The US economy continues to march along at a steady pace, with a weakening USD and the gain in oil prices spurring inflation expectations and making a stronger case for a Fed rate hike later this year.
Hedge funds ended their five-month winning streak, down 0.07% during June based on preliminary numbers for the month. The average return of the global hedge fund was pulled into negative territory in June as developed market mandates underperformed their emerging market peers, with trend-following and macro strategies lagging behind the pack. Meanwhile, underlying markets as represented by the MSCI AC World Index (Local) were up 0.18% over the same period.
Hedge funds posted their fifth consecutive month of gains this year, up 0.33% during the month of May. Meanwhile, underlying markets, as represented by the MSCI AC World Index (Local) which were up 1.09% over the same period. Equity markets performed well this month with strength led by developed markets.
Hedge funds posted their fourth consecutive month of gains this year, up 0.64% during the month of April. Meanwhile, underlying markets as represented by the MSCI AC World Index (Local) were up 1.17% over the same period. The Macron vs. Le Pen run-up to the French presidential election provided some relief for the markets especially for European equities as expectations for a Macron victory in the second round seemed likely.
The global funds of hedge funds industry ended annual year 2016 with dampened investor enthusiasm with redemptions totalling US$46.4 billion for the year. Multi-managers’ performance took a slight beating over the past year, with the Eurekahedge Fund of Funds Index declining 0.12%, underperforming their hedge fund and long-only counterparts which gained 4.50% and 7.65% respectively. Going into 2017, multi-managers have posted impressive gains for Q1 2017, up 2.05% while single and long-only managers gained 2.35% and 6.65% over the same period respectively.
Hedge funds gained 0.34% during the month of March, with their first quarter performance up 2.29%. Meanwhile, underlying markets as represented by the MSCI AC World Index (Local) gained 0.79% in March and are up 5.06% in the first quarter of the year. March was marked by investor scepticism over the Trump administration as proposed healthcare reforms to replace Obama’s Affordable Care Act did not meet intended outcomes.
Hedge funds gained 0.97% during the month of February. Meanwhile underlying markets as represented by the MSCI AC World Index (Local) gained 2.72% over the same period. February was marked by strong performance in US equities on the back of Trump’s fiscal and monetary policy announcements with the S&P 500 ending the month up 3.78%. Economic data out of the US also shed a positive light on the region with a pick-up in inflation bolstered by retail activity.
Hedge funds started the year on a positive note, up 0.87% during the month of January. Meanwhile, underlying markets as represented by the MSCI AC World Index (Local) gained 1.49% over the same period. Among regional mandates, Latin American hedge fund managers topped the tables, gaining 3.73% while event driven managers posted the best returns, up 2.02% among strategic mandates.
As founder and Managing Member, Charles Mautz leads CHAM’s strategy and activities. He also oversees all investment activities including research, allocation and manager selection. Charles developed the firm’s focus on investing with locally-based managers throughout Asia and travels there frequently to identify the next rising stars.
Real estate, buyout, infrastructure, debt, secondary, energy and other closed-end funds (each, a ‘Fund’) frequently seek to obtain the benefits of a subscription credit facility (a ‘Subscription Facility’). However, to the extent that uncalled capital commitments may not be available to support a Subscription Facility (for example, following expiration of the applicable investment or commitment period, a Fund’s organisational documentation does not contemplate a Subscription Facility) or a Subscription Facility already exists, alternative fund-level financing solutions may be available to Funds based on the inherent value of their investment portfolios (each, an ‘Investment’).
The global funds of hedge funds industry faces numerous challenges with little let down in investor redemptions since 2010 as the multi-manager model has come under scrutiny over the years. Over the past year, the industry has faced steep redemption pressure from investors witnessing US$52.7 billion in investor outflows alone. Going into 2016, the industry continues to face redemption pressure with its seventh consecutive month of investor outflows ending March 2016. As of Q1 2016, investor outflows of US$5.8 billion were recorded while performance-based losses stood at US$8.1 billion, bringing the current assets under management (AUM) for the industry to a record low of US$451.9 billion.
Eurekahedge’s funds of hedge funds infographic sums up the industry as at May 2016. Find out more about funds of hedge funds assets under management (AUM), asset flows into strategic and regional mandates, launches and closures, lifespan of active and obsolete funds, and the best and worst performances of the year.
The global funds of hedge funds sector continued to face headwinds with total assets under management (AUM) of the industry in a steady decline since 2011. As of Q1 2015, the AUM of the funds of hedge funds sectors stands at US$505.9 billion managed by a total of 2,988 funds, having declined by roughly US$300 billion since their 2007 peak of US$808.7 billion.
The Asian hedge fund industry has kept up a steady pace of growth and returns comparable to that seen over the same period last year, with modest February year-to-date gains of 1.64%. Total assets under management (AUM) increased by US$3.5 billion largely supported by performance-based gains, bringing the total size of the Asian hedge fund industry to US$164.2 billion managed by a population of 1,382 hedge funds.
Hedge funds resumed their upward climb for the year, with the Eurekahedge Hedge Fund Index gaining 1.40%, underperforming underlying markets as the MSCI World Index climbed 2.34% after bouncing back from October’s major selloff. In the US, better-than-expected unemployment and third quarter GDP figures have supported equities higher and lent additional credence to the country’s recovery.
Fund of hedge funds grew slightly during the year, with the Eurekahedge Fund of Funds Index gaining 2.59% in the first eight months of 2014, coming in behind single managers who returned 3.87%. Although the industry continues to face heavy redemption pressure, assets under management (AUM) of the industry saw a small recovery for 2014 year-to-date, with AUM climbing up to US$529.3 billion managed by a total of 3,122 funds.
Funds of hedge funds had a sluggish start to the year, with the Eurekahedge Fund of Funds Index gaining 0.53% in the first quarter of 2014. They enjoyed somewhat better performance during the previous year in which they reported gains of 8.16%, outperforming single managers who gained 8.10% collectively in 2013 with a higher risk factor. Although the industry continues to face heavy redemption pressure, assets under management (AUM) of the industry saw some respite in the first quarter of 2014, with AUM holding steady at US$524.5 billion managed by a total of 3,145 funds.
Funds of hedge funds had a sluggish start to the year, with the Eurekahedge Fund of Funds Index gaining 0.53% in the first quarter of 2014. They enjoyed somewhat better performance during the previous year in which they reported gains of 8.15%, outperforming single managers who gained 8.07% collectively in 2013 with a higher risk factor. Although the industry continues to face heavy redemption pressure, assets under management (AUM) of the industry saw some respite in the first quarter of 2014, with AUM holding steady at US$524.5 billion managed by a total of 3,145 funds.
The North American hedge funds industry witnessed robust growth in 2013 with the total assets under management (AUM) breaching past the US$1.3 trillion mark, raising the region’s share of AUM to almost 70% of the global hedge fund industry. As at January 2014, the total AUM of the North American hedge fund industry stands at US$1.35 trillion managed by a total of 5,122 hedge funds.
Funds of hedge funds have had a positive year so far in 2013 with the Eurekahedge Fund of Funds Index gaining 4.18% at September year-to-date, and outperforming the benchmark Eurekahedge Hedge Fund Index in five out of the first nine months of the year. While a rebound in market sentiment has helped multi-managers post performance-based gains, their return to historical highs continues to be undermined by the trend of negative asset flows in the industry which were recorded at US$67.3 billion as at end-September 2013.
Funds of hedge funds started 2013 on a positive note amid renewed risk appetite in global markets. The Eurekahedge Fund of Funds Index was up 2.19% in the first two months of the year as underlying single managers witnessed strong returns on the back of rallying global markets. On the flipside, the trend of net negative flows continued from previous years as multi-managers saw net outflows of more than US$25 billion.
The last ten years have witnessed significant trends in growth and performance within the funds of hedge funds industry. At the start of 2002 the industry consisted of approximately 1,000 funds with assets of less than US$100 billion. Over the next seven years the industry expanded at an incremental pace to reach its maximum size of US$826 billion by March 2008.
Funds of hedge funds started 2012 on a positive note witnessing the strongest January to February performance in six years. The Eurekahedge Funds of Hedge Funds Index was up 3% in the first two months of the year as underlying single managers delivered their best start to a year since 2000. On the flipside, the trend of net negative flows continued from 2010 and 2011 as multi-managers saw net outflows of over US$20 billion.
The global fund of hedge funds industry has gone through turbulent times over the last four years. After growing at an incremental pace from 2003 to mid-2008, the industry was hit with excessive losses and widespread redemptions during the financial crisis. Since then, multi-managers have struggled to attract a significant amount of assets.
Caliburn Capital Partners is a thematic fund of hedge fund manager, founded in early 2005 with institutional backing of US$25 million and managed by a team of five seasoned investment professionals with 125 years combined experience of successfully managing hedge funds, funds of hedge funds and investment banking prop trading teams.
The global fund of hedge funds industry witnessed some very strong trends over the last decade, in terms of size and population as well as different aspects of the industry’s make-up. After growing at an incremental pace in the 2003 to mid-2008 period, the size of the industry reached US$826.2 billion in March 2008. However excessive losses and widespread redemptions, triggered by the global financial crisis and some high profile frauds, reduced total assets under management substantially and by July 2009 industry assets fell to US$433.7 billion.
Global fund of hedge funds have witnessed a dramatic change of fortunes over the last two and a half years. The industry grew at a steady pace between 2003 and early 2008, with assets under management peaking at US$826 billion, before suffering considerable losses and widespread redemptions1amid the global financial crises.
Over the past year, the market has been flooded by a great number of UCITS regulated funds managed by hedge fund managers. UCITS hedge funds are said to manage nearly US$ 100 billion with 980 funds globally. Another 125 funds were launched in the first five months of 2010, with total net inflows standing at US$ 12 billion.
Based on data in the Eurekahedge database, we estimate the current size of the fund of hedge funds sector to be US$435.7 billion in assets, with 3,124 funds. The current assets under management represent a 17-fold increase in the size of the industry over the last decade although the sector witnessed considerable losses towards the end of 2008 and early 2009.
It may be time to take a fresh look at funds of hedge funds. As investors seek avenues for diversification through alternative investment strategies, a fund of hedge funds in offshore funds may be a wise choice, despite some potential problems.
For a long time, Luxembourg hedge funds and funds of hedge funds (FoHFs) have been set up under several wrappers, namely funds submitted under part II of the law of 20 December 2002 on UCIs (the 2002 Law) and specialised investment funds (SIFs) governed by the law of 13 February 2007. As of today, hedge fund managers are considering launching UCITS platforms (especially ‘sophisticated UCITS’). As is widely known, UCITS funds are harmonised European retail fund vehicles that can be sold globally and which benefit from the European passport, enabling investment managers to easily market their funds within the EU.
Funds of hedge funds started 2009 on a positive note, outperforming (albeit marginally) their single manager counterparts, who faced high volatility in the underlying markets, amid widespread uncertainty regarding the health of the global financial sector and persistent recessionary concerns across the board. However, this outperformance was seen after a year of notable underperformance in 2008 – when funds suffered losses amid steep market downturns and unprecedented redemption pressures; the Eurekahedge Hedge Fund Index shed 11.6% during the year, while the Eurekahedge Fund of Funds Index lost 19.6%.
The Eurekahedge Global Fund of Hedge Funds Database contains information on over 3,000 funds based on which we estimate 3,324 funds in the industry, managing assets to the tune of US$646 billion as at end of October 2008. This marks an over three times increase in terms of the number of funds, since end-2000, and a remarkable 26-fold increase in assets over the same period.
The 2008 edition of the Eurekahedge Global Fund of Hedge Funds Directory contains information on close to 2,400 funds1. Based on this and related information, we estimate the total size of the fund of funds universe at US$747 billion as of end-2007, up 20% from our end-2006 estimate and accounting for over 45% of global hedge fund assets (up from 43% a year ago). Judging by this and the performance of the Eurekahedge Fund of Funds Index (which rose a healthy 10% in each of the past two years), 2007 has, in the main, been a good year for the industry. The industry has seen impressive growth over the past decade – in terms of the number of funds as well as the size of assets – as can be seen from a comparison of year-end numbers charted in Figure 1 below.
The 2007 edition of the Eurekahedge Global Fund of Hedge Funds Directory contains information on close to 2,100 funds. Based on this and related information, we estimate the total size of the fund of funds universe at US$624 billion as of end-2006, up 35% from our end-2005 estimate and accounting for over two-fifths of global hedge fund assets. Judging by this and the performance of the Eurekahedge Fund of Funds Index (which rose 10% in 2006 in contrast to 7.7% in 2005), 2006 has, in the main, been a good year for the industry.
With between 15% and 20% of all hedge fund assets coming from structured product providers, the alternative investment market is fast catching on to the benefits of attracting such institutional clients. Up until now, most of these assets have been directed at funds of hedge funds (FoHFs), but single-manager funds are beginning to jump on the bandwagon too. Yet despite the allure of ‘sticky’ money, some hedge funds remain dubious of such clients.
In the past few years the hedge fund market has grown in a spectacular manner, with total assets surpassing US$1 trillion in the first half of 2005. This growth has been aided by the lacklustre returns on the equity markets since the burst of the dotcom bubble in 2000 and by a benign climate for many hedge fund strategies, resulting in double digit annual returns for many hedge funds. However, with the strong increase in hedge fund assets, in combination with a changed market environment, it has become more difficult to make the same returns in many hedge fund strategies. In relative value arbitrage strategies in particular, more money seems to be chasing a smaller set of opportunities, resulting in lower or even negative returns.
New York-based StoneWater Capital is founded and run by a group of partners with significant public and private equity investment experience. Founded in 2004, StoneWater Capital is a specialised asset management firm and manages over US$150 million in a global family of long bias fund-of-hedge fund vehicles as well as custom vehicles and other investments.
In this summary paper we show how investors can neutralise the unwanted skewness and kurtosis effects from investing in hedge funds by (1) purchasing out-of-the-money equity puts, (2) investing in managed futures, and/or by (3) overweighting equity market neutral and global macro and avoiding distressed securities and emerging market funds. We show that all three alternatives are up to the job but also come with their own specific price tag.
Put yourself in the CIO’s seat of a fund of hedge funds for a moment. Imagine describing to investors your risk-management process for existing and prospective investments. “Our risk-management process relies on the risk-adjusted returns listed on the major investors’ databases to which we subscribe. Key amongst these are the Sharpe ratios that we use to assess performance. In addition, all the funds in which we invest have an in-house risk manager and provide risk information via third-party independent providers. As we are invested in all the major strategies, we are comfortable with the diversification in our returns.” Sound familiar? Relatively standard pieces such as the one mentioned above have become familiar AI jargon.
With the increase in the amount of hedge funds under management as well as the high demand for investors in this type of investment, a new company is launching itself into constructing and selling an IT platform designed to construct traditional portfolios and funds of hedge funds: HFOptimizer platform.
Platinum Capital Management Limited is a London-based team of investment and asset management professionals and has affiliate offices in UK, Switzerland, Hong Kong and Dubai.
The Alternatrend Fund is a long/short fund of hedge funds which invests in superior managers worldwide. The fund aims to outperform the MSCI World Index signifiantly over the long-term with lower volatility. Charles E. Abrecht, its founding partner shares with Eurekahedge the spectacular performances recorded by the fund.
After no-doubt considerable soul-searching, Hong Kong's Securities and Futures Commission (SFC) finally published in early May the guidelines which it will follow in determining whether a hedge fund will be authorised for public sale. This determination came eleven months after the Monetary Authority of Singapore (MAS) released its own standards. While there are similarities, the hurdles set by the SFC are much higher.
It has become apparent in the last few months that Asian focused hedge funds are hot. Sitting in Asia, this is evidenced by the rate at which the more established funds are closing, and the facts that several new funds are being created every week and that a long queue of Asian fund of fund products is in the pipeline. What is not so evident are the underlying causes of this sea change.