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Hedge Fund of Funds Continue to Lose Assets

As individual hedge funds recover in the first half of 2009, hedge fund of funds are still suffering heavy redemptions. A recent study of the top 50 hedge funds of funds found all but two funds have not recovered from the drop in assets since September 2008.

Assets in hedge funds of funds fell from a spike of $825 billion to just $530 billion in June. This is a staggering loss for the hedge fund of fund industry which has increased at a rate of more than 20 percent annually from 2000-2008. Investment banks led the collapse with the largest reductions in assets coming from the alternative asset arms of banks like HSBC, Goldman Sachs. But even the specialist managers had huge losses: Permal Asset Management's lost 49% of its assets and Man Investments had a 46% drop from Sept. 2008 to June 2009. The only two hedge fund of funds that saw inflows were Blackstone, which grew its operations 25pc, from $20bn to $25bn, and Grovesnor Capital Management, up 1pc from $20bn to $21bn. The hedge fund sector as a whole suffered last year as a combination of the market turmoil and high levels of gearing resulted in its worst performance for a decade. In addition, a sudden aversion to risk and a need for liquidity led to a scramble by investors to withdraw money, causing some funds to collapse. Hedge fund of funds have been hit twice by redemptions both directly and in the funds they invest in. Chicago-based Hedge Fund Research (HFR) has reported that more than 200 funds of hedge funds liquidated in 2009, nearly twice the number of those that closed in the fourth quarter of 2008. However, in recent months some have reported a steady return of inflows, particularly in funds of funds that have restructured and reduced management fees.

Source: istock analyst

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