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Pooled FoHF investment decline slows down
06 January 2014
Investment has flowed out of pooled fund of hedge funds for nine consecutive quarters
Performance measures between hedge funds and pooled FoHFs
have become narrower, according to a new report by
Investors have been pulling money from pooled fund of hedge
funds (HoHFs) for nine consecutive quarters. However the report
found that the rate of decline has slowed in each of the
previous three quarters.
Emerging manager FoHFs performed better than non-emerging
manager FoHFs in 2013. This trend has occurred each year since
Peter Laurelli, research group vice president at eVestment,
said: "Performance measures between hedge funds and funds of
hedge funds, particularly when looking at the largest FoHFs,
are nowhere near as wide as in prior years.
"It seems much of the FoHFs' lagging performance following the
financial crisis, ultimately being a meaningful reason for the
resulting redemptions, was due to exposure to what were
perceived to be less correlated strategies, meaning macro and
managed futures products. Strong flows into each strategy post
crisis corroborate the idea of an influx of FoHF assets.
"What has likely happened since is a repositioning of FoHFs'
strategy exposures, slowly accepting more market risk from
directional strategies, first in the credit space and, based on
their recent positive string of inflows, now into equity
strategies. While this has closed the performance gap
with the HF industry itself, and brought FoHFs back into the
allocation argument in terms of risk adjusted returns, it
brings up other concerns.
"First, with the massive amount of assets going into credit
strategies in the past three years, seemingly climaxing at a
time when interest rates appear to be finding their bottoms,
have FoHFs slowly repositioned themselves to again suffer a
widening performance gap compared to hedge funds? If this is
the case, and if recent equity inflows are a sign of the
beginning of another multi-year shift by FoHFs, might many be
making another slow moving (and slow to reverse) decision to
chase performance at a dangerous time?
"This is not definitive analysis of FoHFs fate, but simply
questions all FoHFs investors should be asking. For the near
term, the declining redemptions from pooled vehicles and
seemingly stable flows for managed accounts and other services
show decisions made in the last two years appear to be good