FoF Asset Flows Positive YTD Despite Q3 Outflows

Nov 5 2014 | 4:15pm ET

Funds of hedge funds saw outflows in Q3 2014 but remain positive for the year,  according to new data from eVestment.

Single-strategy FoFs were the main reason flows were negative in the third quarter, said eVestment VP and head of research Peter Laurelli—they saw redemptions of $7 billion over the monitored period while multi-strategy FoFs saw inflows of $24 billion.

“Barring major redemptions in Q4, commingled FoF flows will be meaningfully positive for the first year since 2007,” said Laurelli.

That said, fund of funds' share of the overall hedge fund industry has declined significantly since 2008.

Since the beginning of 2013, eVestment reports, FoFs appear to have increased their exposure to event-driven strategies, long/short credit and even managed futures, while decreasing their exposure to macro strategies. However, macro strategies make up a significantly larger percentage of FoF portfolios than do managed futures (11.6% vs. 5.0%).

Long/short equity strategies account for about 42% of reported manager positions, an exposure which has increased nearly 5% since 2009.

Event-driven & distressed strategies account for 20%; macro for 12%; credit for 9%; managed futures, 5%; relative-value multi-strategy, 6%; market neutral equity 4%; and other strategies (short-bias, convertible arbitrage, capital structure opportunity), 3%.

Since 2012, FoFs appear to have become more concentrated, holding fewer positions in hedge funds

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