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Funds of hedge funds losing influence, says eVestment

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Funds of hedge funds (FoHF) have gone from accounting for nearly 50 per cent of all hedge funds assets under management (AUM) in 2008 to 28.3 per cent in 2016, according to eVestment’s latest Fund of Hedge Funds Industry Report.

Over the last four quarters, net investor flows were -USD50.3 billion, while HF’s flows were essentially flat, at +USD0.34 billion. eVestment believes this suggests that while FoHF money is coming out, it is being replaced by other investors.
FoHFs have been dealing with investor sentiment by reducing fees. Management fees have been in decline since 2010, falling from an average of 1.24 per cent to 1.18 per cent. Performance meanwhile, fees have been in decline since 2011 (after rising steadily from 2002 to 2011), falling from an average of 8.98 per cent to 8.10 per cent.
The median number of hedge funds held by FoHFs has fallen from 24 in 2014 to 18 in 2016. In 2011, the median number of funds held by FoHFs was 27.
Efforts to differentiate through turnover, fund size and number of underlying investments has not resulted in performance being favourable relative to average returns from hedge funds themselves.
In the last 12 months (ending in Q1 2016), FoHFs were down 5.0 per cent, while HFs were down 2.6 per cent, and single strategy FoHFs (as opposed to FoHFs investing across the board of HF strategies) have generally underperformed the hedge fund universes from which they select their managers.
The exception is macro/managed futures FoHFs which outperformed the managed futures universe in the 12 months ending March 2016.

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