News & Events

2019 Key Trends in Funds of Hedge Funds


Multi-manager funds have recovered from the losses they suffered last year by gaining 5.32% over the first four months of 2019, outperforming their single manager counterparts who returned 5.08% over the same period. In 2018, the fund of hedge funds industry posted its worst annual performance since 2011 as a result of the escalation of the US-China trade war and the Federal Reserve’s aggressive monetary policies throughout the year. Moving into 2019, the easing tension between the US and China trade conflict, combined with the softening stance of the Fed as a response to the weak economic data supported the global equity market over the first few months of the year. Benefiting from the equity market rally, long/short equities fund of hedge funds outperformed their peers utilising other strategies and topped the chart with 8.17% gain as of April 2019 year-to-date. Meanwhile among regional mandates, managers focusing on North America yielded the best performance, gaining 7.70% over the same period.

Total assets managed by funds of hedge funds around the globe stood at US$436.9 billion as of April 2019, continuing the trend of contraction which has persisted since the end of 2010. The industry saw 44 launches and 179 closures last year, marking 2018 as the eighth consecutive year of population decline. Investor interest in the fund of hedge funds remained unsubstantial, with net redemptions and fund liquidations persisting as the recurring themes of the industry.

Figure 1: Industry growth over the years

The fund of hedge funds sector grew at an accelerated pace between 2002 and mid-2008, increasing the size of the industry from less than US$100 billion to the industry’s record high of US$826.2 billion in March 2008. This growth in assets was accompanied by a simultaneous increase in the fund population, with the total number of fund 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 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 a difficult market environment. Following the turbulent times of 2008 and early 2009, funds of hedge funds witnessed a recovery of sorts in the latter half of 2009, with most of the gains coming from performance. However, this proved to be short-lived as investors remained sceptical about the value proposition of the multi-manager model and the industry AUM slowly but surely declined over the years.

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