Opalesque Industry Update - Over the past decade the funds of hedge funds industry has seen a long-term decline in AUM, falling to $798bn in
June 2017, as investors have become increasingly sophisticated and withdrawn capital in favour of investing directly
themselves. As industry assets have dwindled, the number of new funds of hedge funds entering the market has also
fallen year-on-year, from a peak of 207 in 2007 to just 10 in the first half of 2017. In order to combat the challenging
environment fund of hedge funds managers have increasingly turned to M&A activity among themselves in order to
diversify product offerings to become more attractive to investors. The pre-Global Financial Crisis (GFC) period (2000-
2008) saw a total of 13 mergers or acquisitions among funds of hedge funds; 2009-2017 has seen 56. 2014 alone saw
11 M&A deals in the sector, although activity has since receded. Key Fund of Hedge Funds Facts:
Amy Bensted, Head of Hedge Fund Products: "The fund of hedge funds industry faced a series of challenges in the wake of the Global Financial Crisis: a difficult performance environment, changing regulations and a shrinking investor base. With assets under management in decline, and more funds liquidating than launching, the industry has turned to mergers and acquisitions in order to diversify value proposition as well as building economies of scale. However, it should be noted that despite the trend among investors to decrease investing in multi-manager vehicles and to focus on investing directly, a majority of institutions do retain funds of hedge funds as a part of their investment portfolio. The advantages of multi-manager vehicles - to be able to gain exposure to flagship hedge funds and to insulate investors from market shocks - have not diminished. In fact, almost four out of five public pension funds and sovereign wealth funds invest at least in part through funds of hedge funds, representing a significant amount of capital. This demonstrates that despite contraction and consolidation, funds of hedge funds still play a crucial role within the wider industry." |
Industry Updates
Preqin: Fund of hedge funds turn to consolidation
Friday, October 27, 2017
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