Canterbury Consulting is setting up a fund of hedge funds for its clients, signaling that appetite remains for an area of asset management that has struggled to attract investors over the past decade.
The consultant announced Friday that it is working with EnTrustPermal to launch a bespoke pool of hedge funds next month. Canterbury sees investment demand from endowments and foundations with median assets of about $100 million to $110 million, according to Debashis Chowdhury, the firm’s president.
Smaller endowments and foundations can struggle to build the diversified exposure they want in hedge funds due to minimum contributions required to invest directly with managers. Canterbury’s clients want access to well-known, multistrategy hedge funds that typically have higher minimums than more accessible niche managers with a single strategy, he said in a phone interview.
Investing in a pool of hedge funds managed by EnTrustPermal will provide them the access and transparency they desire, according to Chowdhury, who views the offering as more stable because it’s customized.
“It’s tied to Canterbury’s clients,” he said. “We’re not at the mercy of the capital flows that may be negatively impacting some of the other hedge-fund of funds.”
Fund-of-funds managers oversaw $646.6 billion of assets at the end of September, down 19 percent from the industry’s 2007 peak, with investors pulling money from the strategy each year since then, according to Hedge Fund Research.
While many investors have been disappointed with hedge fund performance in recent years, Chowdhury says Canterbury’s clients still like the industry because of where it falls on the spectrum of risk. He characterized hedge funds as an “in-between asset” that can provide more yield than core fixed income but is less risky than public and private equity.
Hedge funds lost about 4 percent last year, compared with an 8.6 percent gain in 2017, according to the HFRI fund weighted composite index.
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The fund-of-funds industry has been unpopular in part due to a lack of transparency, with some mangers providing investors with little more than the sub-strategies pursued by individual managers in a pool, according to Chowdhury.
In working with EnTrustPermal, Canterbury’s clients will know more about what’s happening in the portfolios of the underlying funds, he said.
The Newport Beach, California-based consulting firm oversees about $20 billion of assets, with about 60 percent tied to endowments and foundations and the rest to wealthy families, according to Chowdhury. New York-based EnTrustPermal manages about $20 billion of assets globally.