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Hedgeweek Comment: Funds of funds gain new lease of life

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As volatility lingers in the marketplace, investors are turning to funds of hedge funds to make the best of the situation.

As volatility lingers in the marketplace, investors are turning to funds of hedge funds to make the best of the situation. Funds of funds now manage roughly USD825.9bn, up from just over USD800bn at the end of the March, according to Hedge Fund Research.

While mainstream asset classes experienced losses in the second quarter, the Morningstar Fund of Hedge Funds Index rose 1.43 per cent. Meanwhile, according to a survey by Hedge Fund Manager Week, fund of hedge funds are also the main beneficiary of investments from sovereign wealth.

However, investors cut their allocations to hedge funds by three-quarters during the first half of the year compared with the same period of 2007. Hedge Fund Research says pension funds, endowments, wealthy individuals and other investors brought only USD29bn in new money to hedge funds during the first six months of this year, down from USD118bn in the first half of 2007. The inflow is the lowest for the first half of a year since 2003.

Perhaps these are the early indications of a trend toward funds of hedge funds attracting more interest than single-manager funds. Written off not so long ago as having been superseded by multistrategy funds, funds of funds obstinately refuse to lie down and die.

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