Funds Of Funds: Beta all gussied up to look like Alpha?

Girlie hedge funds and retreating hedge fund returns are putting hedge fund fees under increased scrutiny, especially the double fees in funds of hedge funds (FOHF), and this is seeing more attention shift to single manager multi-strategy funds which are more likely to add value.

Jane Tisdale, senior managing director of absolute return strategies at State Street Global Advisors, said, “As hedge fund returns have retreated from their peak over the last decade, the double fees funds of funds charge for their services have come under greater scrutiny.”

This has also forced some investors to ask if they might be paying a high price for beta returns dressed up as alpha, she said.

“As a result, more institutions are seeking alternative means of gaining hedge fund exposure. Increasingly, multi-alpha strategies run by individual firms are gaining favour because of their fee and risk-control advantages over funds of funds.”

Tisdale said these multi-alpha structures combine a range of absolute return strategies such as capital structure arbitrage, event-driven and global macro strategies, along with active equity market neutral, fixed income, currency, commodity and emerging market strategies.

“When properly run by a large, global institutional asset manager, they have several benefits funds of funds can’t provide,” added Tisdale.

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