Comments on: Despite recovery, long-term misalignments remain in fund of funds sector http://allaboutalpha.com/blog/2009/10/18/despite-recovery-long-term-misalignments-remain-in-fund-of-funds-sector/ A finance blog about hedge funds, portable alpha and alternative investing. Mon, 13 Feb 2012 11:26:54 +0000 http://wordpress.org/?v=abc hourly 1 By: Richard Tomlinson http://allaboutalpha.com/blog/2009/10/18/despite-recovery-long-term-misalignments-remain-in-fund-of-funds-sector/comment-page-1/#comment-212267 Richard Tomlinson Tue, 20 Oct 2009 08:07:25 +0000 http://allaboutalpha.com/blog/?p=6716#comment-212267 A useful summary of a number of key themes. Over the last year or so a few things have become crystal clear: 1. The classical fund of fund business model is likely to need to change significantly in the coming years to respond to new market conditions and investor preferences 2. There is still a clear need for a fund of funds (or asset aggregator) in the investment structure as most true end investors still do not have either the scale or expertise to invest directly Clearly the fund of funds/intermediary business is evolving quickly and we are seeing a large interest in the development of fund of managed account structures as one way of meeting the new breed of investor expectations. There are obviously other ways and my clear feeling is that the industry will stratify, either in terms of firms or products, into buckets of liquidity or risk (very much agreeing with the comment from Rene above). In the past, we all know there was very much a one size fits all approach for many. Another key point to consider is fiduciary responsibility and how dis-intermediation of the fund of funds alters this: it is a big question and one that can have significant implications if not fully understood. A useful summary of a number of key themes. Over the last year or so a few things have become crystal clear:

1. The classical fund of fund business model is likely to need to change significantly in the coming years to respond to new market conditions and investor preferences

2. There is still a clear need for a fund of funds (or asset aggregator) in the investment structure as most true end investors still do not have either the scale or expertise to invest directly

Clearly the fund of funds/intermediary business is evolving quickly and we are seeing a large interest in the development of fund of managed account structures as one way of meeting the new breed of investor expectations. There are obviously other ways and my clear feeling is that the industry will stratify, either in terms of firms or products, into buckets of liquidity or risk (very much agreeing with the comment from Rene above). In the past, we all know there was very much a one size fits all approach for many.

Another key point to consider is fiduciary responsibility and how dis-intermediation of the fund of funds alters this: it is a big question and one that can have significant implications if not fully understood.

]]> By: Rene Levesque http://allaboutalpha.com/blog/2009/10/18/despite-recovery-long-term-misalignments-remain-in-fund-of-funds-sector/comment-page-1/#comment-212076 Rene Levesque Mon, 19 Oct 2009 06:50:06 +0000 http://allaboutalpha.com/blog/?p=6716#comment-212076 A few legitimate themes cascade from this article. Among them are: A - What were the resources that the fund of funds deployed to filter throughout the hedge fund universe? did these resources really understand the mechanics of deriving absolute returns? and for those who relied on the quantitative filters, did they apply or discount the liquidity premium to the "attractive" return profiles? B - The liability mismatch sure indicates that the "hedge fund" universe should be categorized in two buckets: (1) the liquid and nimble ones that deploy a strategy within the most liquid assets and able to offer the liquidity and (2) the less liquid, quasi private equity (shareholder activist, distressed debt, etc) with longer term horizons. After speaking with, and following the developments, of so many in the universe of hedge funds: those in the first bucket (liquid and nimble) are more prone to derive the absolute returns and dislocate from the broad equity draw-downs (referring to those that deploy real hedge fund strategies); and those in the second bucket require the short-term pain (including in liquidity dry-ups) for the benefit of the long term gain. Perhaps the fund of funds should distinguish themselves within the two to better match investors' liquidity and return profile expectations. A few legitimate themes cascade from this article. Among them are:

A – What were the resources that the fund of funds deployed to filter throughout the hedge fund universe? did these resources really understand the mechanics of deriving absolute returns? and for those who relied on the quantitative filters, did they apply or discount the liquidity premium to the “attractive” return profiles?

B – The liability mismatch sure indicates that the “hedge fund” universe should be categorized in two buckets: (1) the liquid and nimble ones that deploy a strategy within the most liquid assets and able to offer the liquidity and (2) the less liquid, quasi private equity (shareholder activist, distressed debt, etc) with longer term horizons.

After speaking with, and following the developments, of so many in the universe of hedge funds: those in the first bucket (liquid and nimble) are more prone to derive the absolute returns and dislocate from the broad equity draw-downs (referring to those that deploy real hedge fund strategies); and those in the second bucket require the short-term pain (including in liquidity dry-ups) for the benefit of the long term gain.

Perhaps the fund of funds should distinguish themselves within the two to better match investors’ liquidity and return profile expectations.

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