The largest firms in the stricken funds-of-hedge-funds industry keep getting larger: The top 50 firms in our annual Fund of Funds 50 ranking control some $494 billion combined, and the top 10 of those firms manage $224 billion.
That’s no accident, if there is any truth to the old maxim that it takes money to make money. The top firms, like No. 1-ranked Blackstone Alternative Asset Management, have the cash to branch out into newer, more lucrative areas beyond the traditional funds-of-funds model of investing in hedge funds on behalf of clients. This once-hot strategy has suffered significantly since the financial crisis of 2008, when funds of funds lost money and clients fled en masse. Now, cutting-edge funds-of-funds firms are getting into areas such as staking hedge fund firms with start-up capital and offering supervisory services for institutional investors who want to invest in hedge funds directly but still need a guiding hand.
These moves, while innovative, cost money and require connections — two things that many smaller firms do not have in abundance. With more and more institutional investors looking to go it alone, firms that have the money to innovate are best placed to survive the new climate.
The data for the 2013 Fund of Funds 50 were gathered from questionnaires completed by the fund-of-hedge-funds firms themselves, research in the public record and extensive staff reporting. In some cases, we have included estimates based on our reporting. Only multimanager hedge fund portfolios are included in the capital figures. Assets are stated in millions of dollars and are current as of January 3 of the respective year, unless otherwise noted. Returns are net of management and performance fees, as of December 31 of the relevant year.
Senior Research Editor Jane B. Kenney compiled this ranking with the assistance of Researcher Valentina McKenzie. Inevitably, we will have overlooked some institutions that belong on our list. If we missed yours, please send an e-mail to FoF50@iimagazine.com to request a questionnaire for the 2014 ranking.