WEST PALM BEACH, FL (www.hedgeco.net) – The popularity of multi-strategy hedge funds has been growing for some time, but some analysts believe such growth does not threaten the dominance of fund offunds vehicles. Funds of funds have been the strategy of choice of many institutional investors, drawn to such strategies because of its diversification potentials.
According to new reports, the number of multi-strategy hedge funds has doubled in recent years, and its managed assets have also seen significant infusion of capital. There is disagreement between hedge fund industry analysts regarding whether such growth is happening at the expense of hedge fund of funds. While both strategies seek to offer diversification potentials, multi-strategy hedge funds offer less diversification than fund of funds in comparative terms.
According to Tremont Capital, the number of multi-strategy hedge funds has doubled to about 500, and their managed assets also grew to about $98 billion. This represents nearly 10 percent of the total of $1 trillion of assets being managed by hedge funds globally. In 2003, the total assets managed by multi-strategy hedge funds stood at about $65 billion. However the total assets managed by multi-strategy funds is far below those of fund of funds, 119 of the largest fund of funds in the world manage assets in excess of $540 billion according to published reports.
Doug Fulton, a principal at Westhall Capital however believes that hedge fund of funds offer superior risk diversification compared with multi-strategy funds. Hedge fund of funds generally charge higher fees than those charged by multi-strategy funds. Hillary Wakefield, a director at EFG Private Bank said, �You may be paying a higher fee to a fund of hedge fund, but if you find the best, you will normally get a substantially better performance.�
Over the past two years however, fund of funds have underperformed multi-strategy funds . According to CSFB/Tremont Hedge Fund index, the multi-strategy hedge funds returned an average of 7.5 percent in 2004, while hedge fund of funds realized 6.7 percent during the same year.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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