Funds-of-hedge-funds launches have been declining every year, prompting a “reinvention” in the multi-manager fund space, according to Preqin.
Preqin’s data showed the number of funds-of-hedge-funds liquidations have been double that of fund launches over the past two years.
In 2016 alone, new fund launches failed to reach 50 while liquidations were close to 100. Last year, the number of liquidations surpassed 150 despite only 50 or so new funds launching.
“The high number of liquidations in recent years shows that funds-of-hedge-funds managers are finding the current environment challenging, and for some, consolidating their firm is a route forward,” Preqin wrote in a note.
Recent mergers in the industry include EnTrust Capital and Permal Group’s combinations into EntrustPermal, Fiera Capital’s acquisition of Larch Lane Advisors, and Aberdeen purchasing Arden Asset Management.
In an effort to better meet investors’ demands—and avoid liquidations—managers have been moving away from traditional commingled products towards “solutions-based services,” Preqin said.
This shift also contributed to the recent decline in fund launches, the note said.
“Now more than ever,” Preqin continued, “funds-of-hedge-funds managers need to offer more in the way of customized solutions, managed account platforms, and separately managed account services, with the increased flexibility in helping to insulate funds-of-hedge-funds managers from criticism of fee structures.”