For the past year pundits have been predicting the extinction of the fund-of-hedge-funds business. The reasoning: As pension fund managers and other institutional investors become increasingly savvy, they will turn to multistrategy single-manager firms to satisfy their diversification needs and to avoid the second layer of fees that come with funds of funds.
The September meltdown of Greenwich, Connecticut– based Amaranth Advisors — a onetime $9.2 billion multistrategy manager that lost $6 billion in less than two weeks largely as the result of a bad energy bet — may just make the experts change their tune. Amaranth investors that held direct positions in its multistrategy funds saw most of their capital evaporate within a matter of days. By contrast, those whose holdings were part of bigger multimanager portfolios escaped with far less devastating losses.
“What happened has been an advertisement for funds of funds,” says Ed Robertiello, head of hedge fund research and manager selection at Credit Suisse in New York. “Most funds of funds that had invested in Amaranth had exposure in the 5 percent range; while it hurts, it’s not an absolute catastrophe.” Robertiello’s Zurich-based firm, which managed $20 billion in funds of hedge funds as of June, had sunk about $8 million of its relative-value and multistrategy portfolios in Amaranth...Continued.
Top Ten Fund of Funds
1. Man Investments
2. UBS
3. Union Bancaire Privée
4. Permal Asset Management
5. HSBC Private Bank/HSBC Republic Investments
6. Société Générale
7. Credit Suisse
8. Julius Baer Group
9. Crédit Agricole Asset Mgmt Alt. Investments
10. Grosvenor Capital Management
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