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Larger funds of hedge funds dominate in H1, Citco data shows

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Funds of hedge funds generated an average gain of 4.2 per cent during the first six months of the year, outflanking long/short equity hedge funds and convertible arbitrage strategies, with larger portfolios pulling ahead of the pack as bigger proved to be better in H1.

New analysis by Citco Fund Services shows funds of hedge funds maintained their positive momentum from 2020 – when they ended the year up more than 11 per cent on average – with a 4.2 per cent average return, and a median return of 4.3 per cent, between January and June this year.

The “vast majority” of FoHFs delivered positive returns, with 92 per cent recording positive performance in the six-month period. That helped the strategy attract some USD2.5 billion in net capital inflows, according to Citco’s ‘’H1 2021 Fund of Hedge Fund Update’.

The study – which explored Citco-administered funds of hedge funds with more than USD30 million in assets – found that larger portfolios with broader diversification outperformed smaller, more concentrated vehicles.

Specifically, funds over USD1 billion were up 5.1 per cent between January and June-end – with 92 per cent ending H1 in positive territory – while funds with more than 50 underlying fund holdings returned 5.7 per cent in the first six months of the year.

By comparison, FoHFs with between USD500 million and USD1 billion gained 4.90 per cent, with 83 per cent in positive territory.

FoHFs managing USD200-500 million were up 4.70 per cent, as 93 per cent made positive returns, and those with under USD200 million generated gains of 3.6 per cent, with 92 per cent in positive territory.

The strategy’s 4.2 per cent first half returns were ahead of both long/short equity hedge funds, which ended H1 up 2.73 per cent, and convertible arbitrage strategies, which gained 1.68 per cent, according to Citco data.  However, FoHFs lagged both global macro funds (8.63 per cent) and multi-strategy managers (7.11 per cent).

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