Asia Pacific funds of hedge funds outperformed regional counterparts.
FoHFs investing solely in Asia Pacific managers returned 9.87% through October, according to data provider eVestment. This comparies with 9.5% for FoHFs focused on European managers, 8.87% for those invested in Africa/Middle East managers and 8.48% for those allocated to North American managers.
On an aggregated basis, funds of funds have fallen behind some major benchmarks. Last year through to the end of October, global FoHFs returned 6.59%, compared with the S&P 1200’s gains of 18.65%, and with hedge fund firms' returns of 7.5%.
Redemptions from global FoHFs continue, as institutions increasingly show a preference for direct hedge fund investment, but appear to be slowing. Investors yanked $11.9 billion from FoHFs in the third quarter, compared with $12.4 billion in the second quarter and $25.2 billion in the first quarter. The latest wave of redemptions left total FoHF AUM at $876.7 billion at the end of September, compared with a peak of $1.2 trillion at year-end 2008.
Funds of hedge funds invested solely in emerging managers have slightly outperformed (6.87%) compared with those invested in established managers (6.59%). This has been the case every calendar year since 2003.
In terms of strategies, long/short equity FoHFs were the top performers at the end of October, up 11.76%. Long/short equity hedge funds, meanwhile, returned 13.06% in the same timeframe.
FoHFs focused on event-driven/distressed managers were the next best performers, gaining 8.26% through month-end October.
The worst performers were those focused on macro and managed futures funds, dropping -2.71% through month-end October. This is slightly worse than macro/managed futures hedge funds, which are down -2.47%.
Fixed income and multi-strategy FoHFs, meanwhile, are outperforming their hedge fund counterparts. Fixed income FoHFs have returned 7.95% at the end of October, compared with FI hedge funds’ gains of 7.22%. And multi-strategy FoHFs are up 6.04% in the same timeframe, compared with multi-strategy hedge fund returns of 4.21%.
The narrowing performance gap between FoHFs and hedge funds may be a positive for the industry, although Peter Laurelli, research group vice-president at eVestment, says investors should still be cautious.
“With the massive amount of assets going into credit strategies in the past three years, seemingly climaxing at a time when interest rates appear to be finding their bottoms, have FoHFs slowly repositioned themselves to again suffer a widening performance gap compared to HFs?"If this is the case, and if recent equity inflows are a sign of the beginning of another multi-year shift by FoHFs, might many be making another slow moving (and slow to reverse) decision to chase performance at a dangerous time?” Laurelli says. These are all questions FoHF investors should be asking, he suggests.