HedgeFund Intelligence’s Press Release from today states that the fund of funds industry shrank by $95 billion in the first half of 2009 but still manages $735 billion. This represents a decline of 11.4 percent in assets under management (AUM). Firms with more than $1 billion in AUM manage a combined $613 billion. According to HedgeFund Intelligence, 18 fund of hedge funds companies have been removed from the InvestHedge Billion Dollar Club (list of firms with $1 billion or more in AUM). Recently, we listed the top 50 fund of hedge funds firms and found that the top 50 firms manage $489 billion.
While the fund of hedge fund industry has shrank over the past year, investors are looking at the decline as a culling of the herd. The better funds of funds have survived the economic turmoil and are ready to take on new investors and identify promising hedge funds.
Many economic analysts and pundits don’t believe we are going to see prolonged aggressive bull financial markets going forward. Rather, investors will be dealing with volatile conditions and unstable markets domestically and abroad. The superior fund of funds managers will have to shrewdly identify hedge fund managers using strategies that capture positive returns while reducing downside deviations in volatile markets.
Furthermore, fund of hedge fund managers will have to be judiciously observant of the infrastructure of fund managers to avoid fraudulent situations that have recently plagued the hedge fund industry and avoid the Bernie Madoff’s of the world. Perhaps, the steady fund of hedge funds managers can be the stabilizing force that returns respectability to the hedge fund industry.