Gwyn Roberts

13/04/2011 Author: Gwyn Roberts

Editor's view: 14 April 2011

For the best funds of hedge funds (FoHFs), patience has proved to be a virtue. Too many of these businesses  – those that didn’t employ gates after 2008, or had the due diligence chops to exclude a Petters or Madoff from their portfolios – have spent the last three years in stasis as investors gave them a wide berth.

However, patience – or just the ability to stay in business while rival firms have disappeared – has been rewarded. According to the latest Barclayhedge/TrimTabs figures, February saw pent-up demand break free, blessing the FoHF sector with a significant $7.5bn of fresh inflows.

This positive data confirms a host of anecdotal evidence and conversations held by HFMWeek since the start of 2011 – even our news flow demonstrates a change. In 2010, we covered a surfeit of FoHF redemptions, which has now now become a trickle, while investors are more frequently conducting FoHF searches, as they use the sector to access niche strategies.   

The recovery is based on compromise. FoHFs have improved due diligence, while investors have also proved not quite as adventurous as many believed them to be – often settling for a solid core of FoHFs, orbited by a selection of single managers.

The return to health is good news for small and start-up funds, crying out for investment as the majority of money still goes to marquee names. A cash-rich FoHF industry could now reward their patience.

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