Research

2012 Key Trends in Funds of Hedge Funds

Introduction

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.

The onset of the financial crisis triggered a period when funds of hedge funds faced significant redemptions pressure and performance-based losses, while a number of managers were also hit with some high profile frauds. In the post-financial crisis environment, investors have remained sceptical of the value added by funds of hedge funds and their business model itself has also been questioned. Regulatory changes have also posed challenges for the multi-managers as American and European regulators have started to impose stricter frameworks for investment managers.

As displayed in figure 1, growth in the industry has flat-lined since 2008 and although performance has improved, asset flows to multi-managers have remained flat or negative over the last four years. As at end-August 2012 the size of the industry stands at US$552.8 billion managed by 3410 funds of hedge funds.

Figure 1: Industry growth since 2002
  

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