11/12/2008

FoHF assets under administration drop 5%

Faltering hedge fund performance is continuing to put service providers under strain, according to the latest HFMWeek Assets Under Administration Survey.

The second part of the magazine’s biannual research found that the assets of funds of hedge funds (FoHF) had shrunk by 5% – dropping from $1.4trn to $1.3trn – over the past six months.

Although the fall has defied the gloomiest predictions for FoHF performance, respondents to the survey anticipate a further slide in hedge fund and FoHF assets, leading to casualties in the hedge fund administration business – particularly among smaller firms.

Observers expect the situation to worsen as fee reductions are compounded by hedge funds migrating to larger administrators, in an attempt to meet increased investor and regulatory demands.

UMB Funds Services told HFMWeek that demands from investors for greater transparency will place a burden on smaller firms, particularly when it comes to independent valuations.

Despite the current woes of service providers, the assets under management of FoHFs have held better than many have predicted. One reason for this is that much of the recent wave of cash redemptions has been automatically re-invested back into the sector.

Last week, HFMWeek found that AUM for single managers had also dropped by 5% - falling from $2.9trn to $2.7trn. Total industry figures fell from $4.3trn to $4.1trn