The poor performance of hedge funds in general was especially bad news for funds of hedge funds.

On the surface, the poor performance confirms an identity crisis for funds of funds, one that began with the financial crisis. The conventional wisdom was that funds of hedge funds were too expensive at 1 and 10 for what they offered. But the sector kept growing, and funds kept adapting.

The Financial Times notes that, “In the 1990s, FOHFs were the only way to gain access to the underlying hedge funds in an opaque and secretive industry. This model virtually ignored portfolio construction, which became more prominent in the 2000s as investors sought to reduce volatility and target absolute returns. The financial crisis and meltdown in markets disabused investors of the notion of absolute returns, so the model has changed again and risk is now the industry watchword.”

These days, potential limited partners want to see best practices in terms of risk as compliance-oriented administration, along with good fun picking strategies.

“FOHFs are now routinely expected to excel in asset allocation, risk management, manager selection, maintaining relationships with managers, benchmarking peer groups and so on. In other words, they need to look and feel like established asset managers.”

Friendlier redemption policies certainly don’t hurt. Stenham Asset Management just launched the Stenham Helix Fund, which invests similarly to its flagship global macro fund. The big difference is that Stenham Trading’s new “liquidity requirement” of 35 days’ notice rather than the 95 days set for Stenham’s other global macro funds. 

For more:
- here’s the article

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