Many investors place capital in funds of hedge funds in order to gain exposure to non-traditional asset classes. One group of investors that has shown a particular interest in this strategy of late has been wealth advisors. During the fourth quarter, this investor category has accounted for 33 percent of BHA’s fund of hedge funds mandates.
Wealth advisors typically have smaller investment teams and do not have the capacity to analyze a wide range of hedge funds. Therefore, they invest in funds of hedge funds to gain exposure to alternative investments. Increasingly, many wealth advisors are investing in multi-manager funds to provide clients with a broader choice of strategies—investment approaches in which the advisors may not have experience.
For example, a large wealth advisor told BHA that it uses funds of hedge funds to have a diverse range of investment opportunities. Currently, the firm is interested in multi-strategy fund managers that have a global focus.
Another wealth advisor is looking to invest in strategy-specific funds and anticipates investing in a fund of CTA funds poised to perform well in 2010. Therefore, it is willing to hear from funds of CTA funds that have short-term, intermediate, and long-term holding periods. Funds should have 10 to 20 underlying managers and must invest across the CTA spectrum.
Increasingly, wealth advisors are adding funds of hedge funds to their clients’ portfolios as a way to expose them to the hedge fund market and many advisors continue to use these funds after they prove they provide diversification and good performance.
