03/06/2009

One in four FoHFs faces risk of closure

One in four funds of hedge funds (FoHFs) is facing the threat of liquidation, according to a private polling exercise undertaken by a UK hedge fund.

According to the survey, funds of hedge funds have struggled to maintain an even keel, despite improved performance figures in 2008. Many businesses are now in the process of liquidating individual funds or closing down altogether, as investors continue to redeem.

The fund – which provided the information on the condition of anonymity – said that it had started the research as a way of tracking potential investment interest.

Harbour Drive Asset Management, the fund of hedge funds business of boutique US investment bank CRT Capital Holdings, is one of a number of recent casualties, HFMWeek can reveal.

A spokesperson for the bank confirmed the closure, but declined to elaborate saying, “CRT is a private business that will not comment on these matters”.

Some funds of hedge funds businesses are worried that calls for more transparency at a hedge fund level, the increased use of managed accounts and the rise of Ucits III vehicles will demystify their businesses models, rendering them less useful.

Despite the change in investor sentiment, and the results of the poll, Barry Thomas, senior vice-president at FRM Capital Advisors, believes that funds of hedge funds will still continue to attract investor interest, as the best method of accessing alpha.

“Certain institutional clients have invested in funds of hedge funds to gather knowledge, only to then divest and go direct. However, this hasn't worked out for everyone, and many are returning to FoHFs,” he said.