It was a tough year for hedge funds in general, but funds of hedge funds seem to be faring the worst.

Hedge Fund Research reports that the number of funds of hedge funds totaled 2,018  at the end of Q3 201, which is down 18 percent from the 2007 high of 2,462. While single funds have declined as well, the number of these funds has soared.

Going forward into 2012, Agecroft forecasts that funds of hedge funds will continue to see net redemptions.

“This will primarily be driven primarily by the largest pension funds, which are choosing to bypass funds of funds and make direct investments in order to save on fees. These redemptions are likely to be partially offset by smaller and mid-sized pension funds, as well as some high-net-worth individuals, who will continue to use funds of funds.”

The bloom is off the rose. While I fully agree that large institutions will increasingly pick funds themselves, I quibble with the idea that high net worth individuals will stick with funds of funds. There’s a lot of competition out there for high net worth individuals, and they will be more than willing to point out the shortfalls of the funds of funds approach.  

For more:
- here’s the article

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