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The year 2012 did not see the end of the world, as the Mayans
predicted, but during the Chinese Year of the Water Dragon, the
global fund of hedge fund community witnessed continued
turbulence as the way money is invested in hedge funds
continues to converge. Driven by recently empowered investors,
many of whom are unwilling to take risks or embrace the
volatility required to harness returns in the current global
low-interest-rate environment, the Chinese Year of the Snake in
2013 will see further transformation.
By Niki Natarajan
As Davina MacKail points out, there will be less drama but,
nonetheless, the lines will continue to blur between
traditional FoHFs, managed account providers and hedge fund
consultants in the turf war to advise on hedge fund assets, and
increasingly other alternatives.
Prior to this converging world of alternative investing,
knowing what one offered and why, was 90% of the sales pitch,
the other 10% was communicating it effectively. The
asset-gathering winners in the institutional space, until now,
were those who understood how the consultant-driven pension
fund market operated and therefore hired a good, former
long-only, sales rep with a solid institutional Rolodex,
comprising mainly investment consultants.
Now the rules of the game have changed: the investor is in
charge of umpiring and many of the consultants are considered
poachers by the territorial funds of funds that are slowly
understanding that 'investment solutions’ and
'customisation’ are the new FoHF.
To play, the old commingled masters must adapt their way of
thinking, because investing is no longer a case of opening a
box of Lego and following the instructions on the lid: it is
about piecing it all together to create something potentially
much more spectacular and unique.
And because many FoHFs have more than a decade’s
experience – some up to forty years – few
pretenders to the hedge fund-investing throne are
experientially qualified to do this successfully. That said,
unless FoHFs adapt and find ways to collaborate with investors
solving their problems rather than pushing products, the new
generation will sweep up the assets, irrespective of
Hedge funds have become so commoditised that they can be
sliced and diced according to liquidity profiles, as part of a
risk budget, slotting long/short equity funds into equity
buckets and finding a home for more esoteric credit trades in
the defensive fixed-income portfolios.
Investment solutions may be the name of the new game, but it
predicates that the investors know what they want, why and when
they want it, and where they want it – and across all
asset classes, not just the hedge fund portfolio.
With FoHFs, consultants and managed account providers all
offering a variation on the investment management and/or
manager selection theme, and products and/or solutions in any
shape and size, that challenge for the investor is about
finding the right partner to make sure that, three years down
the line, they do not manifest a funding gap.
Institutional memory seems to have already forgotten 130/30,
the double leverage of portable alpha and all those other
'solutions-driven’ fads such as CPPI (Constant
Proportion Portfolio Insurance). And yet, picking a hedge fund
advisory partner has become even more challenging, with
performance seeming to slip down the list of investor selection
priorities and pure gamekeepers being few and far between.
Kevin Gundle, senior executive officer of Aurum Funds in
London, sums up the challenges facing the industry succinctly.
"The challenges that we may confront would be justifying the
case for hedge funds in the face of a strong equity market
performance. The misconception that hedge funds and equities
are directly comparable has unfortunately become mainstream.
The case for hedge funds has not had the opportunity to be
reinforced due to the muted performance over the last few years
and the disappointments of 2008. The industry needs to convey
the message that hedge funds are relevant and fill a specific
role in investment portfolios."
He adds: "Another challenge that the multi manager/FoHF
industry is continually faced with is the threat posed by the
asset consultants offering fiduciary management in implemented
solutions. The potential for conflict of interest is high,
making it difficult for FoHFs to compete on a level playing
field. Availability of data on the performance of implemented
FoHF solutions makes it difficult to compare performance."
In fact, how can investors measure excellence in this new
In our performance review we see that, contrary to popular
belief, some FoHFs do perform and justify their fees, while the
InvestHedge Awards for Investor Excellence on 25 September at
The British Museum will once again showcase those fund of hedge
fund investors that have performed over a long period of
In 2012, the global FoHF universe returned 3.87% net of
fees, with many strategies and managers far exceeding this
median. Meanwhile, the HedgeFund Intelligence Global Hedge Fund
Composite index was up 5.97%, superficially explaining why many
investors are being encouraged to invest directly to
'save’ on fees.
Given that some FoHFs can clearly outperform the average
hedge fund median, let alone the average FoHF, many believe
that in a number of circumstances investing directly may be a
saving now, but a false economy in the long run.
Greg Fedorinchik of Mesirow Advanced Strategies takes this
discussion to the next level by providing a cost-benefit
analysis of both routes to conclude that only those with more
than $500 million to invest directly are likely to see the
benefits in terms of fees, due to the hidden and unreported
charges that FoHFs house in their much-maligned fees.
That said, fee compression is one of the key challenges many
members of the InvestHedge Billion Dollar FoHF Club see as an
issue for them in the coming year, especially as the cost
structures of FoHF businesses are coming under pressure, with
margins being squeezed and costs increasing in
non-alpha-generating capabilities such as compliance and
dealing with increased regulatory requirements.
Despite being described as an industry in crisis or, worse
still, a dinosaur model of investing, the largest FoHFs in the
world with more than $1 billion in assets under management
still run a quarter of all the $2.2 trillion in hedge funds.
Taking into account the assets run through managed account
platforms – those not already counted in the survey
– 28% of the industry’s assets have
At the end of 2012, the InvestHedge Billion Dollar FoHF Club
was made up of 101 firms managing $591 billion. Split
between $403 billion in commingled vehicles, $121 billion in
customised portfolios and a further $67 billion in advisory
assets, the global FoHF industry has been hovering around the
$600 billion mark since June 2009.
The top 101 has firms with assets ranging from $44.8 billion
for New York-based Blackstone Alternative Asset Management
– once again the largest firm in the FoHF universe
– at one end of the spectrum to the niche $1.1 billion
global equity/long short value investor, Berens Capital
Management, also in New York, at the other.
In 2012, the top 101 FoHFs saw assets shrink by 1.7%, a loss
of $10 billion despite the five new entrants –
Mirabaud Asset Management, Thalìa, Persistent Asset
Management, The Bornhoft Group, and the return of Rothschild
HDF Investment Solutions after the purchase of HDF –
adding nearly $12 billion to the total.
The universe of five new entrants saw their assets grow by
3.13% in 2012, although Thalìáaitself saw a drop
of 11% in 2012, while Persistent Asset Management grew by 13.6%
organically. Rothschild HDF’s 31.5% asset growth
can be attributed to the merger of assets of the two
Mirabaud Asset Management, which saw flat growth in 2012, is
one of three advisers to the soon-to-be 40-year-old $1.5
billion Haussmann Holdings FoHF, alongside Notz Stucki and
Banco del Ceresio. The Geneva-based firm has made its debut in
the rankings, not because it is suddenly large enough, but
because its $5 billion invested in hedge funds has been counted
for the first time in the rankings, as have those of
Denver-based Bornhoft Group (
see profile in InvestHedge, November 2012), which has a
track record of 27 years’ investing in commodity
The equivalent of $10 billion has left the rankings in the
form of the six groups that have dropped out. In the second
half of the year, Tarchon Capital Management announced its
decision to close its FoHF business, while The Capital
Partnership’s assets fell below $1 billion.
In the first half of 2012, the rankings saw the removal of
Coronation International, Gems Advisors and Mariner Investment
Group, which have all stopped reporting assets, with the latter
focusing on its hedge fund and multi-strategy fund business,
while Signet Capital Management lost 22% of its assets,
equivalent to $270 million, in the first half of the year to
drop below $1 billion.
Mergers and acquisitions
M&A was the key sport in 2012, but most of the
respondents to the survey believe that this will continue in
2013 as costs are squeezed, investors ask for more but pay
less, and regulatory and operational costs continue to
There were four completed mergers between eight Billion
Dollar Club members in 2012: Financial Risk Management with Man
Group to create FRM; Kenmar’s purchase of Olympia
Capital Management to create Olympia Kenmar; Union Bancaire
Privée’s purchase of Nexar Capital Group
and the assets including Ermitage that it has amassed; as well
as Lyster Watson’s FoHF assets joining Crestline
In total, there were more than 15 FoHF mergers in 2012,
including Permal’s bid to buy Fauchier Partners,
from BNP Paribas Investment Partners, which has held a stake in
the $6.29 billion firm since 2001, a deal that is due to
complete this year. The merger creates a $24.1 billion firm
that will precipitate Legg Mason affiliate Permal Investment
Management, which has $18.3 billion, from its current seventh
position to become the fourth-largest player in the world after
Blackstone, UBS and HSBC Alternative Investments in 2013.
"Strategically, Fauchier Partners meets all of our criteria,
for it accelerates the development of our institutional
presence, enhances the European and Asian business, and
strengthens the Permal employee talent pool," said Isaac
Souede, chief executive officer of Permal.
Asset assimilation will continue in 2013 as size seems to
matter almost more than performance to those wanting to hire
FoHFs to create bespoke portfolios. Crestline Investors, which
saw its assets under management grow by nearly 11%, is taking
advantage of the maturing industry and trend towards
consolidation by opportunistically picking up businesses to
strengthen its diversified hedge fund strategies business.
In terms of asset growth, 48 out of the 100 groups had flat
or positive asset growth, with this universe averaging asset
growth of 11.1% and adding more than $31 billion. In terms of
asset growth, there are 16 firms that ended the year with asset
growth of 20% or more.
Looking at organic growth, Aetos Capital was the firm with
the greatest growth rate of 54.5% in 2012, adding $3.3 billion.
Seven Bridges Advisors, Ironwood Capital Management, HFR Asset
Management, Meridian Capital Partners and Private Advisors had
performance growth ranging from 49.5% to 29.3%, but it is an
incomplete picture of those firms’ assets, as the
InvestHedge survey relies on SEC filings, whose reporting time
periods do not match those of the survey.
The firm with the greatest growth in Europe is Swiss Capital
Alternative Investments, which saw its assets grow by 35% in
2012, while Kenmar Olympia Group and Rothschild HDF Investment
Solutions saw theirs grow by 34.7% and 31.5% respectively due
to the merger.
Also in Europe, BlueCrest Capital Management saw its assets
in the AllBlue self-invested FoHF grow by 20.8%, largely
through institutional wins such as Camden and Lambeth pension
schemes in the UK. AllBlue is also popular with US pension
funds. While LGT Capital Partners, whose multi-alternative
mandate from Hertfordshire County Council Pension Fund is not
included in the 2012 totals, saw its assets grow by 20% last
In New York, SkyBridge Capital, Corbin Capital Partners,
Magnitude Capital Partners, Optima Fund Management and Entrust
Capital each saw their firm’s assets grow by
27.7%, 25.8%, 24.6%, 24.3% and 22.4% respectively. The biggest
growth in assets in dollar terms is Blackstone, with asset
growth of $5.5 billion.
Of the universe, 52 firms have seen outflows averaging
12.8%, equivalent to a loss of $41 billion. Exane Asset
Management and SEB Alternative Solutions (the former Key Asset
Management business) were the two biggest losers in terms of
assets under management in 2012, at 35% and 32.7% respectively.
In total, 15 groups had losses of more than 20%, including
European-based groups such as EIM, Unigestion, Pioneer
Alternative Investments, Axa Investment Managers and Lyxor
Despite its merger with Man’s stable of assets
that include Glenwood, GLG and RMF, FRM’s assets
have fallen by 23.6%, equivalent to $5.1 billion, the largest
single dollar amount outflow in the universe. The next largest
outflow in US dollars was from HSBC, whose assets under
management in hedge funds fell by $3.4 billion.
BenchmarkPlus, InvestCorp Asset Management, Credit Suisse,
NB Alternative Investment Management, Protégé
Partners and PRS International Investment Advisory Service are
among the US-based firms that have seen more than 20% of their
assets flowing out in 2012.
That said, 58% of the global FoHF universe, with assets of
$396 billion, is based in the US, and on average North American
firms have seen their assets grow by 3.47%, adding $13.3
billion in 2012. Meanwhile the remaining 43 firms, with assets
totalling $190.6 billion – based in Europe, Asia and
the Middle East – saw outflows averaging 10.7%,
equivalent to $23 billion.
The Super League – FoHFs with more than $10 billion
in assets – is made up of 12 firms, 75% of which are
US-based firms. On average the Super League, which has $254
billion under management, lost 2.15% of assets, equivalent to
The largest firm with the greatest growth rate is
Blackstone, growing by 14%, followed by Morgan Stanley, which
saw assets grow by 5.6%. BlackRock Alternative Advisors and
Pacific Alternative Asset Management Company both saw assets
grow by about 1.5%, while UBP Alternative
Investment’s growth of 1.84% can be attributed in
part to the merger.
Although the Super League may have 43% of the total
universe’s assets, in terms of asset size, firms
with more than $10 billion on average saw outflows. In addition
to FRM, which saw 23.6% of assets flow out, and HSBC –
the third-largest FoHF, which saw nearly 12% leave –
Permal, ahead of its Fauchier Partners deal, saw outflows of
8.45%. Despite the Man merger, BlackRock leapfrogged FRM to
take eighth place in the rankings. UBS Global Asset Management
A&Q, with $25.5 billion and the second-largest firm in the
rankings, and Mesirow Advanced Strategies, with $13.5 billion,
both saw outflows of 5.7% and 5.2% respectively.
Grosvenor Capital Management, which now has $22.3 billion in
assets, also saw 2.2% of assets flow out, equivalent to $500
million. The $22.9 billion managed by Goldman Sachs Asset
Management in hedge funds grew by 0.32% in 2012.
Outflows also dominate the universe of those with assets of
between $1 billion to $5 billion. It is this group that houses
14 of the 24 firms that have asset growth of more than 10%;
yet, despite this, these 64 smaller FoHFs – with a
combined $159 billion in assets under management – saw
combined assets shrink by 3.5%, equivalent to $5.8 billion.
Seven Bridges is the fastest growing group in this group,
with assets growing by 49.5%, while Exane saw the largest
amount of assets leave, equivalent to 35%. In terms of size,
Private Advisors – with $4.6 billion – is the
largest, while Berens, with $1.1 billion, is the smallest
Like Goldilocks, both the largest and the smallest FoHFs saw
assets shrink, but the sweet spot of the Billion Dollar Club
– firms whose assets grew by 0.72% on average,
equivalent to $1.3 billion – is the $5 billion to $10
billion group. This group, which has $179 billion under
management in 24 firms, only had 37.5% of its members posting
outflows for 2013, while nearly 42% of the FoHFs are based in
Aurora Investment Management is the largest of this
sub-ranking with $9.95 billion at the end of 2012, although it
started 2013 with more than $10 billion under management, while
Banca del Ceresio is the smallest, with $5.7 billion. Aetos has
the greatest growth rate, growing by 54.5%, while Amundi saw
its FoHF assets shrink by 28.7%.
For nearly 50% of the firms in the rankings to be growing
must mean that assets are flowing into FoHFs, or that
performance is significant. Thinking creatively and
'alternatively’ will be the way that FoHFs start
to thrive again. The best example in 2012 of looking outside
the box came from Arden Asset Management, which saw its assets
grow by 5.9% before its landmark deal was announced.
The $7.2 billion New York-based firm, founded by Averell
Mortimer in 1993, created the Arden Alternative Strategies
Fund, a registered investment fund under the 1940 Act
regulations, and raised $740 million in one sitting. Mortimer
realised that the defined benefit pension fund market was
contracting – highlighted by fee compression as
underfunded pension funds struggle to close funding gaps
– but the defined contribution market was growing.
The US 40 Act FoHF market only has some $20 billion in
assets at the moment, but figuring out how to tailor products
for the defined contribution wrap market will allow some FoHFs
new asset growth opportunities. So far, BlackRock, JP Morgan,
Legg Mason (through Permal), Fidelity (with Arden), Wells Fargo
(which teamed up with Rock Creek) and Franklin Templeton (with
K2 Advisors) are among the mutual-fund brands that have
affiliations to FoHFs and so the potential to make in-roads
into what is likely to become a rich source of assets.
"The landscape for FoHFs is moving away from multi-strat
commingled products in favour of more concentrated portfolios
and specialised customised products that are tailored to
deliver a very specific set of investment objectives.
Additionally, we also believe that alternative mutual fund
products, which are fund of hedge funds in a mutual fund
structure, will be a large growth area as there is increasing
demand particularly from self-directed retirement assets," said
The industry still faces challenges in 2013, including
consolidation and flows of assets to the bigger firms. The Year
of the Snake is about continuing the transformation that
started the previous year, but it will be less violent,
primarily because the new paradigm has been accepted by most
In fact, half of the FoHF industry now seems ready to eschew
the term 'FoHF’ as a description of what the
industry does, and opinions are fairly equally divided when it
comes to describing the new frontiers of hedge fund investing
being drawn up by the convergence. More than 51% of the
respondents believe they are now more than just FoHF, while
48.5% believe that the term correctly describes their
Those at the forefront of the convergence, like Notz Stucki,
see themselves as asset allocators, with hedge funds and FoHFs
as an asset-class diversifier. Yet the majority that are
ready to let go of the moniker 'FoHF’ see
themselves as providers of hedge fund solutions on both a
discretionary and advisory basis.
Others, like Unigestion, prefer the term alternative
investment partner. Under the umbrella of 'alternative
investment solutions’, the services that most of
the firms formerly called FoHFs offer include commingled funds,
but also customised mandates, advisory mandates, identifying
managers for funds-of-one and risk management.
Firms like Gottex also have the ability to offer bespoke
managed accounts, multi-asset endowment style products, private
equity style real asset funds and portable alpha
The challenge for all multi-managers, whatever they choose
to be called, will be to adapt and implement
solutions-orientated strategies because most FoHFs agree that
the continuing trend for investors choosing to go direct will
have the greatest impact on FoHF businesses.
Firms planning to stay the course will have to make sure
they are set up to cater to the increased demand for
customisation, as well as clients seeking more opportunistic
allocations to hedge fund strategies.
Deutsche Bank’s 11th Annual Alternative
Investor Survey stated that the demise of FoHFs has been
exaggerated, with evolved business models attracting
institutional capital, and that 58% of end-allocators say that
the main benefit of FoHF allocations is access to niche
managers, including smaller or younger funds. Indeed finding
newer, smaller, under-the-radar managers is what many FoHFs are
Increasing regulatory requirements will also present
challenges for many in the industry, putting further pressure
on smaller players. However, the consultants offering
implemented consulting are named by many FoHFs as a cause for
concern in 2013.
The outgoing Year of the Dragon saw consultants make their
mark firmly on the hedge fund-investing landscape. Groups such
as Towers Watson saw their assets invested directly in hedge
funds grow by nearly 36% from $14.8 billion to nearly $20.2
billion by the end of 2012; and, together with the $31.5
billion that Mercer has of its clients’ assets in
hedge funds, it means that the consulting fraternity is a force
to be reckoned with among hedge fund investors.
Specialist hedge fund consultants have been advising clients
for a while now, but the convergence between commingled,
advisory and customisation requirements of investors means that
groups like Towers Watson are ready to be counted among the
FoHFs as professional hedge fund advisers. Mercer, which has
$2.9 billion on a fiduciary basis and $28.6 billion on an
advisory basis, continues to prefer to be seen as a specialist
consultant because of the dual nature of its client consulting
and investment requirements.
But if just two London-based firms can allocate $51.6
billion to hedge funds, then tracking the global consultant
allocation will start to show a fuller picture of
investors’ advisers. For this reason, from
September, InvestHedge will include a hedge fund consultant
asset growth table for both fiduciary and advisory direct
allocations to run alongside the Billion Dollar Club to track
which consultants are growing in this market.
Interestingly, on its website, Albourne Partners –
the largest hedge fund specialist consultant – states
that 261 clients have more than $300 billion invested in
alternatives, but does not specify how much is in hedge funds.
Marketing itself as a provider of research and advice on
"complicated assets" that it defines as "hedge funds, private
equity and real assets", seems to point to another area of
Now that hedge fund investing is becoming more commoditised,
some FoHFs are expanding their remit and manager selection
experience to include one or more of other alternatives such as
property, private equity, commodities and infrastructure;
subjects that will be covered in more detail at the InvestHedge
Forum on 24-25 September at The British Museum, which will be
themed 'Capitalising on Convergence’.
Growth in managed accounts provides further evidence of hedge
fund investing convergence
"The demise of funds of funds has been exaggerated, with
evolved business models attracting institutional capital," a
recent Deutsche Bank Alternative Investment Survey stated. The
survey found that 29% of those FoHFs surveyed saw new business
in 2012 for bespoke portfolios.
As the hedge fund investing industry evolves with the
end-investor ever more empowered to customise and create their
own bespoke solutions based on individual needs and parameters,
the managed account platform industry has grown and evolved,
finally entering the mainstream of hedge fund investing.
In fact, due to the start of a new type of managed account
platform that entered the scene in 2012, the industry as a
whole experienced growth of nearly 16%. This newest player is
InfraHedge, an infrastructure-only platform founded in January
2011 by Akshaya Bhargava and Bruce Keith (
see InvestHedge, February 2013) that saw its assets
catapult from zero to $7.61 billion in a year.
On this plug-and-play platform, which is backed by State
Street Corporation, investors, including funds of funds, can
design the type of platform they need and retain the investment
management responsibility over the underlying assets.
Managed accounts, which in 2012 saw their assets grow to
$57.85 billion, are now part of the investment armoury.
Originally a banking product on which to create
capital-guaranteed investments based on hedge funds, now it not
only allows investors access to a smorgasbord of hedge funds,
but also the tools and transparency with which to evaluate risk
and create dedicated reporting.
The new business models enable clients to pick and mix hedge
funds directly and/or ask their advisers to create bespoke
portfolios of customised solutions around existing portfolios
including the increased use of managed accounts by funds of
hedge funds as a way of offering clients the risk management,
transparency and reporting they need for their bespoke and
Funds of hedge funds – such as Permal and FRM,
which are serious about getting into the customising/bespoke
world of catering to investors’ tailored needs
– are building their own platforms. These two groups
alone account for $15.6 billion in new assets to managed
accounts but, unlike the banking world, are also accounted for
in the main FoHF survey.
That said, two of FRM’s clients –
Universities Superannuation Scheme and Bayerische
Versorgungskammer (BVK) –
are investing directly, but using FRM’s managed
account tools; so technically they are not classic
commingled FoHF clients but rather 'new-age’
clients. Such examples highlight the convergence that is
occurring in the hedge fund investing space.
"The multi-manager model requires change and improvement
– that is why successful funds of funds are developing
their ability to provide solutions-orientated services, making
it easier for investors to own hedge funds through tailored
portfolios designed for their specific needs," says Luke Ellis,
president of Man Group, with oversight of FRM,
Man’s $16 billion FoHF division.
"We see managed accounts and the transparency, liquidity and
control they provide as playing an important role in this.
Furthermore, large FoHF providers are increasingly happy to
allow their institutional investors to co-invest in managed
accounts alongside their FoHF and customised portfolios," he
These direct investors, usually with large portfolios to
allocate, are keen to invest directly, often with the
assistance of specialist consultants such as Albourne Partners
and managed account platforms, as the assets still need to sit
somewhere where trades can be monitored.
Until this survey, the assets of managed account platforms
have been kept in a separate table. But the new funds of
funds’ managed account platforms are essentially
made up of the managers that the FoHFs invest with anyway
– and as such would be counted in the FoHF survey.
They are now, however, presented on a platform for those
investors that want to go direct so that the platform can
access the transparency, risk management and reporting that
they are looking for. In the early days of sell-side managed
accounts, managers that the internal bank FoHF might not ever
invest in would be included. These days, managed accounts are
simply an interactive display cabinet for hedge funds.
For this reason, $16.5 billion in buy-side managed account
assets for FoHFs such as Permal, FRM, Gottex and Sciens Fund
Management are included in their multi-manager totals.
Asterisks in the MAP table opposite denote whether or not the
assets are included in the main multi-manager ranking.
That said, of a total of $57.9 billion in managed accounts,
$41.4 billion of assets invested in hedge funds via the managed
account structure are not included in the multi-manager
rankings and may include the assets of FoHFs that do not have
their own proprietary platforms.
"Nowadays many investors want to tailor investment solutions
to their specific requirements through a managed account
platform, not just by taking the traditional commingled
investment route, preferring the greater transparency, control
and flexibility that this route affords. Even on our own
platform, around half the underlying accounts are customised
specifically to our requirements, and include more concentrated
portfolios, higher liquidity, more opportunistic mandates and
tailored risk parameters," says Roberto Giuffrida, executive
vice-president, head of global business development at Permal
As a fund of hedge funds group, FRM post merger with Man,
which now has $16.5 billion invested in hedge funds, may have
seen $5.1 billion flow out of its business as a whole in 2012,
equivalent to an outflow of 23.61%. But the assets run on the
managed account platform have grown by nearly 20% to $9.2
billion from $7.7 billion in a year highlighting the importance
such platforms have when offering a variety of solutions to
The additional $41.4 billion of assets invested in hedge
funds via managed accounts and not accounted for via FoHFs
includes those of asset managers with platforms that started
out on the banking sell-side, such as those run by Lyxor Asset
Management and Amundi Alternative Investments; these now offer
advisory alongside their traditional FoHF and managed account
Hybrids such as these two Paris-based managed account
pioneers continue to report their assets separately, with Lyxor
seeing its MAP business growing by 1.9% to be the
second-largest platform with $10.7 billion, while its
Paris-based rival, Amundi Alternative Investments, saw its MAP
business more than double its size in 2012 to end the year with
57.7% in assets that now total $4.1 billion.
Interestingly, both these French groups saw outflows of 20%
and 28.7% from their respective funds of funds business, which
now have $9.6 billion and $6.7 billion under management,
confirming what many believe to be a continuing trend of using
managed accounts to create bespoke investment solutions.
So important is the 'investment solution’
business in the new paradigm of hedge fund investing, that last
year Lyxor teamed up with Koris International to design
investment solutions for distribution across continental Europe
based on the funds available on the Lyxor Managed Account
Lyxor will manage the portfolios and Koris International
will act as an independent adviser. The two firms will jointly
market the investment solutions to European investors and money
Jean-René Giraud, founding partner and chief
executive officer at Koris International, sees this partnership
as a reflection of the successful cooperation that has been
running for almost a decade with Lyxor Asset Management. "We
are delighted to roll out what we believe is a unique
combination of asset allocation expertise with cutting-edge
operations and infrastructure. Managed accounts are a smart and
comprehensive way to gain access to the skill set of hedge fund
managers in a transparent and controlled manner," Giraud
As the hedge fund investment market moves more toward the
provision of solutions, the partnership, which will last at
least two years, will combine Lyxor’s managed
account platform that applies liquidity and systematic risk
control to alternative strategies, with Koris
International’s extensive quantitative asset
The investment solutions, which can be tailored to suit
small institutions, family offices and private banks, will
offer these investors a more dynamic alternative to investing
in commingled funds of funds. The tailored solutions will
combine fund selection, risk control and liquidity, as well as
dynamic quantitative asset allocation.
Other managed account assets that are kept separate from the
fund of fund numbers are managed accounts of bank sell-side
providers such as UBS Liquid Alpha Platform and Goldman Sachs,
which also separately offer funds of hedge funds in their asset
The UBS Liquid Alpha Platform, which was launched in
September 2012 (
see InvestHedge, July/August 2012) and sits in the equities
division of UBS, saw its assets grow by 37% to finish 2012 with
$3.2 billion, while its asset management cousin UBS Global
Asset Management A&Q, with assets of $25.5 billion
– the world’s second-largest fund of fund
business – saw outflows of 5.7% in 2012.
Deutsche Bank, which is currently re-organising its business
and where the managed account platforms sit, had $11 billion on
its platform at the end of the year and saw outflows of $2.1
The once trillion-dollar global FoHF universe, which at its
peak in June 2008 included 160 firms, has seen a drop of 37.5%
in terms of number of firms and 49.2% in assets under
management since then. Pure funds of hedge funds may now only
account for some 25% of total assets invested in hedge funds,
but add in the money on managed account platforms and that
share increases to 28%.
As Mark Twain reportedly said after hearing his obituary had
been published in the New York Journal, "The reports of my
death are greatly exaggerated". So. too, are reports of the
demise of funds of hedge funds, which are simply re-configuring
how they manage hedge fund assets for clients who would like
more control over the investment process.
InvestHedge Billion Dollar
Club: Funds of funds with more than $1bn under management, 31