pa analysis the dwindling role of fohfs

Funds of hedge funds are a constant source of debate in this office and we are still undecided about exactly how much they are used, and to what extent, in private client portfolios.

pa analysis the dwindling role of fohfs


The evolution of Ucits – with Ucits VI being worked on as Ucits IV is rolled out – has meant that hedge fund strategies can be wrapped up in a more tax and investor-friendly wrapper. With access easier, it is simply a case of making the investment proposition stack up and the genus of absolute return funds is proof that investors are still willing to follow hedge fund strategies.

However – now here is the complication – in the interviews we do with our wealth manager readers of Portfolio Adviser we get into the nitty-gritty of what they invest in and why. Funds of hedge funds rarely come up, suggesting they are rarely used.

Research into the use of Ucits funds of hedge funds released earlier this week isn’t conclusive either.

The obvious thing to point out is it was produced by Alix Capital, a company that has a vested interest in promoting alternative Ucits funds as it runs its own Ucits Alternative Index tracking the returns of global and strategy-specific funds.

Its research points out:

  • “At least 50% of Ucits hedge fund investors intend to increase their allocation to equity market neutral, macro and volatility strategies.”

By implication, half may actually be reducing their exposure to these strategies.

  • “65% of respondents expect Ucits hedge fund assets under management will continue to increase in the second half of 2012.”

Hardly a surprise as all investors expect returns to go up in aggregate otherwise they wouldn’t invest in that sector. Another interpretation is that nearly two-thirds of those who do invest think there isn’t going to be a mass exit from alternative Ucits.

  • “70% believe the fund of hedge funds model is still valid in the Ucits context.”

What it goes on to say is that 15% of respondents do not believe the Ucits fund of hedge fund model is valid; what it does not go on to say is what the remaining 15% think…

So to what extent do you use funds of hedge funds in your client portfolios? And if you do use them, why do you invest in them?


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