•  
• Tweet
•  
•        Print
•  
•         Track Keywords
•  
• 

From The Opalesque Team:

The fund of hedge funds (FoHF) portion of the industry is taking a slightly slower journey toward recovery. While single strategy hedge funds performance has made impressive gains during the first half of 2009, (Eurekahedge hedge fund index returned +9.38% YTD) FoHFs have lagged behind slightly (the Eurekahedge fund of hedge funds index returned +3.81% YTD).

According to a report by Fitch Ratings, this lagging performance may be due to FoHFs sitting on larger than normal cash reserves.

“Fund of hedge funds still hold material cash positions, which are natural drags on performance in up markets,” says the report – as indeed FoHFs have approximately 20% to 30% of NAV sitting in cash.

While the FoHFs industry works to restore investor confidence and cycle out of net outflows (still ongoing in Q109), the increase in sidelined cash is evidence of the new focus on managing investor liquidity and investment liquidity.

Liquidity ranked as one of the largest problems facing FoHFs in 2008. During the past 12 months ratings agency S&P downgraded 10% of FoHFs for liquidity problems that resulted in managers gating or withholding assets from investors (a portion of this 10% also represents funds downgraded for Madoff investments).

What net inflows in FoHFs would mean for underlying managers If 2Q09 sees net inflows into FoHFs then some of this reserved sideline cash may move back into single strategy mana......................

To view our full article Click here