Asian fund-of-hedge-fund assets have halved year-on-year to $16 billion, from $34 billion at end-2011, the result of disappointing performance and a growing trend towards direct investments by institutions, according to Preqin.
The drop counters a trend seen in North American FoHFs, which saw modest growth in assets to $506 billion at end-2012, from $485 billion the previous year. They are the biggest contributors to global FoHF industry assets, which stand at $810 billion as at end-2012, from a peak of $1.2 trillion in 2008.
The fall in Asian FoHF assets is attributable to a number of factors, reckons Ross Ford, manager of hedge fund profiles for Preqin.
Throughout last year, the data provider has seen a greater number of institutions invest in hedge funds directly, reducing FoHF assets globally.
“Asia Pacific-based fund of hedge funds have seen a larger proportion of outflows in 2012 and this can partly be attributed to their below-expected performance in 2011,” Ford tells AsianInvestor. He notes that regional FoHFs finished 2011 with an average loss of -8%.
“Investors who are looking to maintain their current allocation to fund of hedge funds are also shifting away from smaller boutique Asia-Pacific-based FoHF managers and are instead looking to invest with more established North American managers that still offer exposure to Asia-Pacific-based hedge funds,” says Ford.
Regional-focused FoHFs would have found it challenging to achieve strong gains, given that Asia-Pacific hedge fund performance has lagged other strategies and regions in the past two or three years.
Performance concerns are the top reason cited by investors who are planning to reduce their exposure to FoHFs.
A Preqin poll of investors shows that 65% include FoHFs as part of their hedge fund allocation, with 35% saying they are either considering or are in the process of reducing their exposure to multi-manager funds.
A further 27% say they plan to exit their fund of hedge fund investments in the belief that they could create a portfolio of direct investments with better performance.