The global hedge fund industry recently crossed the $2 trillion mark in assets under management, a symbolically important accomplishment given the turmoil inflicted on the industry by the financial crisis.
But as investors have returned and performance has picked back up, the same growth in assets has not been shared equally across the hedge fund landscape. Whereas single-manager vehicles have long since surpassed their previous AUM highs, funds of funds continue to lag significantly behind their previous record asset total of approximately $800 billion. In fact, according to recent data from HFR, funds of hedge funds actually saw three straight quarters of outflows to end 2011, finishing the year with approximately $630 billion in assets still under management.
A challenging environment, yes, but hardly the death knell for the fund of hedge fund industry. There are still more than 2,000 such vehicles in operation and the benefits of the fund of fund approach remain much the same as they’ve ever been, namely in their ability to provide diversification and risk mitigation by investing across various managers, strategies and styles; the access they can offer to managers and teams that might not otherwise be available; and, in the case of especially skilled fund of funds managers, the opportunity to add alpha generation to an overall portfolio.
