UK fund of funds: Fulfulling investor needs

by Alex Chalikiopoulos

  • 21 Feb 2011
  • HF

15.2% of all funds of hedge funds monitored by Preqin are based in the UK. The median assets under management of these managers is USD 763 million and the mean portfolio includes 51 underlying vehicles, far more than that of all other groups of investors. As funds of funds grow in size, so too do their hedge fund portfolios; the largest UK-based funds of funds manage portfolios in excess of 150 underlying vehicles. More than three-quarters of all UK-based funds of funds pursue a long/short equity strategy to some extent as part of their underlying fund investments, and over 90% seek global opportunities. Half of UK funds of funds have an interest in emerging markets, with the same proportion stating Asia as a preference.

As institutional investors account for an increasing proportion of all fund of funds investors, managers have become more aware of the need to meet the needs of these investors, improving transparency, liquidity and fee structures amongst other things. Managers now undertake more thorough due diligence on underlying investments, offering bespoke, tailor-made vehicles for the larger investors and have launched UCTIS-compliant funds of funds; just over a third of UK fund of funds managers state a preference for investing in UCITS vehicles.  GAM, for instance, intends to continue its investments in the space with the launch of two Newcits funds of funds imminently, while Aberdeen Asset Management has recently announced that it intends to allocate to UCITS funds with both daily and fortnightly liquidity over the coming months.

Throughout 2011, UK funds of hedge funds will continue to increase capital inflows, offer more diversified products and actively make new investments. For example NewFinance plans to add up to 15 new hedge funds to its portfolio over the coming year and AXA Investment Managers, which has tightened some of its manager selection criteria over the past two years, is set to invest in up to 10 mangers over the same time period. Other movement includes the transition of traditional funds of funds to funds of managed accounts; since the acquisition of its Managed Account Platform (MAP) from Partners Group, Sciens has changed many of its funds of hedge funds to funds of managed accounts. The group will also be launching the Sciens Aqua Fund in Q1 2011.

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