One couldn’t blame those who work in funds of hedge funds to feel a little giddy over two pieces of news that may give the one-time-left-for-dying HF vehicle a boost. One bit of good tidings comes at the expense of the bad-fund day at Amaranth Advisors. Market observers are saying the hedge fund manager’s current woes point to the fact that multi-strategy funds like Amaranth are no safer than the single-strategy variety. The idea of the multi-strategy is to prevent against what happened; they’re supposed to prosper even in market downturns. Of course, perhaps Amaranth wasn’t exactly playing by the multi-strategy playbook when it didn’t hedge its energy bets properly and poured too much of its assets (reportedly more than 55%) into natural gas. Such an event is likely to have investors thinking twice unless there are stricter controls and better transparency, Reuters reports, and perhaps drive them to an alternate -- funds of hedge funds. Which brings us to the second piece of good news: analysis by ABN Amro has shown that funds of hedge funds, at least in the U.K., do a good job of preserving capital and generating returns, even in a down market. For example, in May, when the FTSE100 was at a year low of 5%, every sterling-hedged FoHF listed in London outperformed it. Even in a good month, according to Citywire, which reported on the research, when the FTSE rose 3% in March, four funds of hedge funds outdid it. Citywire reports that at least one FoHF, Acencia Debt Strategies Fund, was in positive territory each of the first six months of the year, while Schroder Alternative Strategies and Tapestry Investment Co. boast outperforming the FTSE 80% of the time during that period. HSBC European Absolute, Man Alternatives and Thames River Hedge also did better than the FTSE. “Overall, the sample did reasonably well in preserving assets in falling markets and some outperform on the upside,” says ABN Amro.
