Funds of Hedge Funds Fight Back | Chief Investment Officer

Funds of hedge funds, for some the fall guys of the alternative investment sector, have just recorded a 12-month period that outperformed their single manager peers.

Data from Preqin showed that in the 12 months to the end of July, funds of hedge funds—across all regions and sectors—made 5.19%. This outshone the average for the single manager universe, which sat at 4.65%.

“The hedge fund industry failed to gain pace in July, with average returns in the red for the second month in a row,” said Preqin’s report on the sector. “The Preqin All-Strategies Hedge Fund benchmark was down 0.31% in July following returns of -0.87% in June.”

Funds of hedge funds, however, posted returns of 0.33% through July, driven by the strong performance of macro strategies-focused funds of hedge funds, which were up 1.74% for the month.

During the financial crisis, funds of hedge funds were hit by performance and liquidity issues. Many investors fled from the sector, choosing to return to alternatives only with single manager-led funds.

In July, eVestment reported that total commingled fund of hedge fund assets rose to $943.4 billion in the first quarter of the year due to performance gains. However, the research firm also said sentiment towards the products has been negative in recent quarters. The company reported that the fund of hedge funds sector had lagged others in the alternatives universe.

Nevertheless, the standout fund of hedge fund performers were invested in multiple CTA managers, which made 18.87% in the 12 months to the end of July. The average single manager CTA fund returned 9.46% in that period. Euro-denominated single manager CTAs gained 14.41%.

Elsewhere, funds of equity strategies returned 6.5%, compared to single managers in this category, which made an average 5.17%. However, single manager macro funds fared better than their fund of fund peers, producing 5.26% compared to 4.4% over the 12 months.