By Niki Natarajan
For funds of funds, the Bernie Madoff effect finally seems to have worn off. Though these funds—particularly those directly invested in the Madoff Ponzi scheme—were badly burned by losses and redemptions in 2008 and the first half of 2009, performance gains and new money appear to have helped the industry to find more stable footing in the last half of the year.
The industry is a long way from a full recovery, however. Since the start of 2009, funds of funds managing $1 billion or more collectively lost more than 10% of their assets, amounting to nearly $72 billion, according to the latest InvestHedge Billion Dollar Club survey. Some 114 firms, managing a combined total of $625 billion in assets, made the Billion Dollar Club list for the second half of 2009. That’s in stark contrast to the club’s peak two years ago, when 151 of the largest funds of funds in the world had more than $1 trillion in assets under management. And 24 firms fell out of the Club in 2009, wiping a combined $43.8 billion of assets off the total managed by billion-dollar funds of funds as of December 31.
Still, despite losing the equivalent of 43% under management over two years, the funds-of-funds industry appears to be on the rebound. Performance has recovered, with funds of funds gaining 9.21% overall in 2009, according to the Invest-Hedge Index. In 2008, funds of funds lost 16.63%, when many had to mark down illiquid or fraudulent portfolios. And while the industry still lost money overall in 2009, the flow of assets reversed in the second half. The Club lost $95 billion in the first six months of 2009, when assets shrank by more than 13%, but performance gains and inflows in the second half of the year helped narrow those losses by year-end.
The 30 largest funds of funds, which collectively manage $406 billion, now account for 65% of the Club and 87% of the overall loss of assets last year. The top 30 firms lost nearly $63 billion in 2009.
UBS Global Asset Management, with assets of nearly $30 billion, continues to dominate the funds-of-funds rankings, but Blackstone Alternative Asset Management—which now occupies the second slot, according to the survey—is actually the largest independent discretionary manager in the world, with $27.1 billion under management. The New York firm moved from third to second place with asset growth of nearly 15%, or nearly $3.5 billion. Grosvenor Capital Management has also continued its steady rise, jumping from seventh place to fourth, thanks to a 9.9% growth in assets over the course of the year. That translates to a $2 billion gain, bringing Grosvenor’s funds-of-funds assets up to $22.53 billion.
One of the biggest losers as a result of Madoff is Union Bancaire Privée, which shed a brutal 56% of its assets in 2009 and lost its short-lived status as the biggest fund of funds in the world. The firm lost nearly $24 billion and has fallen to seventh place—down from second place at the start of 2009. UBP now manages $18.8 billion.
To placate clients, the firm has drastically changed its business. Now the firm’s hedge funds and long-only funds reside under one roof, and the firm recently hired Richard Wohanka, the former chief executive of Fortis Investment Management, to run the combined businesses.
Man Investments also fell hard, losing $9.5 billion. The firm consolidated its funds-of-funds businesses in 2009, merging the assets of RMF—which had some Madoff exposure—and Glenwood Capital, and it also unwound its Man Global Strategies business. Man fell from second place down to ninth place.
Five new entrants have joined the ranks, including Berens Capital Management, which reentered the club in 2009. Hermes BPK Partners joined in the first half of the year, as did BlueCrest Capital Management. Lee Ainslie’s Maverick Capital also joined, as did Robeco-Sage. This group of new entrants to the Club added $8.26 billion in assets to the rankings.
INVESTHEDGE BILLION DOLLAR CLUB (TOP 30)
Funds of funds with more than $1bn in assets under management, December 31, 2009
