News & Events

2014 Overview: Key Trends in Funds of Hedge Funds

Introduction

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.

The funds of hedge funds sector grew at an accelerated pace in the 2002 to mid-2008 period, increasing the size of the industry from less than US$100 billion to a maximum of US$826.2 billion by March 2008. This growth in assets was accompanied by a simultaneous increase in the fund population, with the total number of funds of hedge funds increasing from below 1,500 to nearly 3,700.

The advent of the global financial crisis reversed this trend, with assets under management (AUM) of the industry taking a sharp turn for the worse after steep losses and heavy redemption pressure from investors, causing a number of multi-managers to close shop in the difficult market environment. Following the turbulent times in 2008 and early 2009, funds of hedge funds witnessed a recovery of sorts in 2009, with most of the gains coming from performance. However, this proved to be short lived and AUM currently stands at US$529.3 billion, 35.9% below its 2008 peak.

Figure 1: Industry growth since 2000
 

The industry showed further signs of recovery late in 2010, with multi-managers posting performance-based gains and witnessing some capital inflows as total AUM climbed to US$650.0 billion by March 2011. The latter half of 2011 witnessed increased risk aversion among investors over the European sovereign debt crisis and led to significant capital outflows from the industry.

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