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From Kirsten Bischoff, Opalesque New York:
The recently published Standard & Poors 2Q09 funds of hedge funds (FoHF) report showed that investors are beginning to return to the space cautiously. However, FoHFs that survived 2008 will be capping their future possibilities for asset growth if they don't address the liquidity problems that plagued them in 2008.
"The attraction of funds of hedge funds is still as strong as it ever was," Dermot Butler, Chairman of the Custom House Group told Opalesque. "They provide diversification throughout a range of funds."
Custom House Group, a hedge fund administrator with a global reach, works with both single strategy managers and a large number of funds of hedge funds, which has given Butler a bird's eye view of the problems that faced FoHFs. He says many FoHFs prior to 2008 saw monthly liquidity as a necessity to attracting investor allocations. However, the underlying managers FoHFs were investing into were typically only offering quarterly, half-yearly, or yearly liquidity.
This liquidity mismatch between investor requirements and underlying manager requirements caused the industry the most stress during 2008. These problems then snowballed when underlying managers had illiquidity forcing large numbers of FoHFs instituting gates and/or side pocket vehicles, further angering their investor base.
"Really [the situation] was no different to the mortgage lende...................... To view our full article Click here
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