Introduction

2009 has been a year of mixed fortunes for funds of hedge funds, witnessing record redemptions through most of the year while at the same time, posting one of the best performances year-to-date. The Eurekahedge Fund of Funds Index has gained 9.17% November YTD and is on track to have the best year since 2003. In terms of asset flows, however, 2009 has been the worst year on record, witnessing net redemptions of US$164 billion November YTD.

The fund of hedge funds industry currently comprises 3,110 funds, almost 15% down from end-2007 which collectively manage US$440 billion. The assets under management figure has decreased by almost 50% from its maximum of US$823 billion in May 2008, primarily driven by the widespread redemptions. The notable difference between the decline in the number of funds and assets in 2008 and 2009 is attributed to most of the industry’s assets being eroded by performance losses and redemption requests rather than only widespread closures.

Although funds of funds started the year with two straight months of outperformance over single-manager hedge funds, multi-managers have not been able to match the strong gains made by underlying managers since then. Hedge funds have, on average, gained 18.34% November YTD as opposed to 9.17% for funds of funds. Furthermore, multi-managers also largely underperformed the single-managers in 2008 – the Eurekahedge Hedge Fund Index shed 11.6% during the year while the Eurekahedge Fund of Funds Index lost 19.6%. On average, funds of funds have only managed to outperform hedge funds in 18% of the months since 2000.

Figure 1 shows the growth in the number of funds of funds and the assets under management since 2000.

Figure 1: Industry Growth over the Years

Click on the image for an enlarged preview

This report is broadly divided into two parts – covering asset flows and performance review. The section on asset flows will look at the fund of funds industry in terms of manager locations, geographic mandates...

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