Fund of hedge funds world now 30% smaller

Funds of hedge funds took it on the chin in 2008 — right along with the overall hedge fund industry, according to a survey released today. Extreme volatility and a general lack of liquidity were among the key forces that shrank the FOF industry by 30%, down to $744 billion, according to London-based HedgeFund Intelligence Ltd. The results of an annual survey of the company’s InvestHedge Billion Dollar Club revealed there are 137 FOF management firms with more than $1 billion under management, including 14 newcomers added to the list in 2008. There were 27 firms that fell off the list, due either to business liquidations or because assets dropped below the $1 billion mark. The average FOF return last year was a 16.6% decline. This was slightly better than the average single-strategy hedge fund, which was down 18% last year. The Standard & Poor’s 500 stock index plunged 38% in 2008. “The [FOF] industry has taken a serious beating, but it is not an industry on the brink of extinction,” said Niki Natarajan, editor of InvestHedge, a HedgeFund Intelligence publication.