Consultants and Wealth Advisors Show Interest in Funds of Funds
The debate over the viability of funds of hedge funds, while always in existence, seems to have picked up fervor in the wake of the Bernie Madoff scandal. The due diligence by funds of funds’ managers was at the very least negligible and, in some cases, nonexistent. While some have argued that funds of funds are going to evaporate like the morning dew, in our one-on-one interviews with alternative investors, BHA analysts find sustained interest in funds of funds among certain pockets of the investor community, namely consultants and wealth advisors.
For these investor types, the right funds of funds can provide diversification as well as a wealth of experience in hedge fund analysis. Most of the interest in funds of funds has been focused on diverse multi-strategy products as opposed to single-strategy or narrowly focused funds of funds. In the first quarter, 77.42 percent of investors interested in funds of hedge funds have been looking for multi-strategy funds, and 49 percent of interested investors are looking for globally diverse funds. What this data indicate is that investors actively looking for new funds of hedge funds want to diversify their alternative fund exposure in terms of fund types and geographic regions.
An investor whose search epitomizes this trend is a Midwestern wealth advisory firm that is looking for diverse funds of hedge funds with exposure to at least 30 underlying fund mangers. It is also looking for funds with at least $800 million in assets under management. It is targeting
well-established, extremely diversified funds in the current market. A Southern U.S. consulting firm is targeting funds of hedge funds with attractive fee structures for a potential allocation. It is looking for funds with diverse geographic exposure and is targeting funds with at least $500 million in assets.
Both of these searches are fairly representative of the interest that BHA analysts have heard from investors during the past few weeks. For established funds with diversified exposure, now is the time to take advantage and target wealth advisors and consultants.