By Jeff Benjamin
The
hedge fund industry is in recovery mode, which includes a bit of an evolution, according to latest industry analysis from PerTrac Financial Solutions LLC.
Total industry assets grew by 5% in 2009 to $1.4 trillion, but the number of individual hedge funds declined by 9% to 12,200.
The total number of funds of hedge funds fell by 7% to 6,300.
“What we're seeing right now is an evolution, not a revolution,” said Meredith Jones, PerTrac's managing director in charge of compiling the data from 10
hedge fund databases to produce the most comprehensive annual study on the industry.
While total industry assets are well off the peak of $2.1 trillion in 2007, the evolution is most pronounced in the breakdown of single-manager funds and funds of funds.
In 2007 the amount of money flowing through funds of funds into single-manager funds was equal to 47% of the total, or $980 billion.
Today, the $580 billion flowing through funds of funds represents just 41% of the total, signaling a slight change in investor strategy and philosophy, Ms. Jones said.
“We have no reason to believe funds of funds are going away,” she said. “But the decrease in assets flowing through funds of funds is not just a decrease in line with the industry's overall assets, and it represents a small trend of people going directly to single-manager hedge funds.”
Part of that trend, she said, could be attributed the string of high-profile financial scandals over the past few years.
“There was some disenchantment with the way some funds of funds didn't outperform the average
hedge fund,” she said. “Investors who can do it want more control over their portfolios, and they're doing more on the risk management side, and they're demanding more from managers in terms of transparency.”
As a result, Ms. Jones added, the fund-of-funds model is evolving to the point where the funds are becoming more responsive to investor needs and desires.
“I'm seeing funds revising their manager selection and monitoring procedures, and some are becoming funds of separate accounts,” she said. “And a lot of funds of funds are adopting more of a consultative model.”
Since the survey data was compiled using filings from the end of 2009, the industry in general has started to emerge from what had been a “somber mood,” Ms. Jones said.
“We are seeing a lot of hiring in the asset-raising space, and that's usually a positive sign,” she said. “The mood is very different today than it was a year ago.”
