New York (HedgeCo.Net) – More than half of fund of hedge fund firms (FoHF) surveyed – 53% – increased both revenue and assets under management in the 2010 – 2012 period, compared with only 47% that did so from 2009 to 2011, according to respondents to the third annual FoHF business benchmarking survey by Casey, Quirk & Associates and BNY Mellon.

Smaller firms, those with less than $5 billion in assets, have grown the fastest since the global financial crisis of 2008, followed by midsize firms – those with assets between $5 billion and $12.5 billion. Large firms haven’t fully recovered with AUM and revenue still below the 2008 level, according to the benchmarking survey. Overall, firms that can still charge a performance fee over most of the assets managed have shown the strongest revenue gains since 2008.

Casey Quirk and BNY Mellon surveyed 23 firms with total assets of $159 billion. FoHFs globally have approximately $600 billion in assets.

In aggregate, the firms surveyed reported gross sales of $29.8 billion in 2012, with European pensions representing the largest group of buyers. Outflows totaled $41.5 billion, with investors moving to direct investments in hedge funds considered to be the biggest cause of the withdrawals, according to the survey.

While the retail sector has been considered a promising segment for FoHFs, many respondents to the Casey Quirk/BNY Mellon survey have been disappointed by the results to date with registered funds.  A handful of firms with dedicated retail sales resources have raised substantial retail assets, but most firms surveyed lack those sales teams.

The FoHFs surveyed signaled they plan to hire in institutional sales, their top priority this year.

“Funds of hedge funds are still in recovery mode from the financial crisis,” said Daniel Celeghin, partner at Casey Quirk, a leading management consultant to the global asset management industry. “The shift to direct investments and increased scrutiny of the entire hedge fund business have added to the challenges confronting funds of hedge funds. The firms that can deliver superior products and performance, maintain strong distribution, and offer distinctive  advisory and custom services will stand apart and thrive.”