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Alternative Market Briefing

Fund of funds face new challenges from investors

Thursday, February 06, 2014

Bailey McCann, Opalesque New York:

Fund of funds in the US and Europe have been dealing with headwinds ever since 2008. As regulation and investor's preference for direct investing has evolved the fee structure and access offered by the fund of funds model makes less sense to savvy institutions. Delegates at the recent Opalesque Geneva Roundtable noted that fund of funds in America are getting bigger mandates, at least in part because of their willingness to carve out niche expertise.

"In the fund of funds industry, the core business relies upon the selection of the most talented hedge fund managers. We all know that. But what the industry players have been figuring out over the last couple of years is that it is no longer enough from an investor standpoint. Fund of funds managers now need to go beyond that, for instance by convincing a manager to evolve under a UCITS format or by being responsible vis-à-vis the fee structure. On this last point, I must stress that I believe that the 2 and 20 structure, especially in Europe, is no longer acceptable," explains Arié Assayag, Global CEO of UBP Alternative Investments.

This focus on fees in Europe may be putting investors at a disadvantage over their American counterparts. "The industry is facing this significant demand from mostly U.S. pension funds or endowments that are going direct. Those institutions basically seem not to care s......................

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