2013 Overview: Key Trends in Funds of Hedge Funds

November 2013

Funds of hedge funds have had a positive year so far in 2013 with the Eurekahedge Fund of Funds Index gaining 4.18% at September year-to-date, and outperforming the benchmark Eurekahedge Hedge Fund Index in five out of the first nine months of the year. While a rebound in market sentiment has helped multi-managers post performance-based gains, their return to historical highs continues to be undermined by the trend of negative asset flows in the industry which were recorded at US$67.3 billion as at end-September 2013. The funds of hedge funds sector grew at an accelerated pace during the 2002 to mid-2008 period, increasing the size of the industry from less than US$100 billion to a maximum of US$826.2 billion by March 2008. This growth in assets was accompanied by a simultaneous increase in the fund population, with the total number of funds of hedge funds increasing from below 1500 to over 3700. The advent of the global financial crisis reversed this trend as the underlying hedge funds posted large losses; and under the burden of heavy redemption pressure from investors, assets under management (AUM) of the industry recorded a steep decline with a number of multi-managers closing shop in the difficult market environment. The current AUM of the industry is 38.6% below its 2008 peak and stands at US$507.6 billion managed by a total of 3214 funds. Figure 1: Industry growth since 2000
4,000 3,500 900 800 700 600 500 400 300 200 100 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Sep13

Number of funds

2,500 2,000 1,500 1,000 500 0

Number of funds AuM (US$ billion)

Source: Eurekahedge

Following the turbulent period in 2008 and early 2009, funds of hedge funds witnessed a recovery of sorts in the latter part of 2009. Most of the gains came from performance during the year the Eurekahedge Fund of Funds Index was up 9.91% in 2009 as hedge funds posted record returns amid active central bank intervention to ease market liquidity.

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THE EUREK AHE DGE REP ORT NOVEMB ER 2013

AUM (US$ billion)

3,000