Funds of hedge funds had a solid 2020 and continued where they left off then in the first half of this year. This year's first half wasn't quite at the same pace as where the funds stood in 2020, but it still was a solid return.
Solid returns for funds of hedge funds
Funds of funds administered by Citco posted an average return of 4.2% and a median return of 4.3% for the first half of the year. For comparison, funds of hedge funds posted an average return of 11.2% and a median return of 9.9% for all of 2020. Ninety-two percent of the funds of funds administered by Citco had a positive return for the first half of the year.
Global macro strategy funds of funds had the best return at 8.63%, followed by multi-strategy funds at 7.11%. Long/ short equities funds returned 2.73% for the first half of the year, while convertible arbitrage funds returned 1.68%.
Greg Fenlon, Head of Alternative Investor Services at Citco Fund Services (USA) Inc, says that funds of funds had made a dramatic comeback last year and in the first half of this year.
"Funds of hedge funds continued to demonstrate their value as an access to alternatives by delivering positive returns in the first half of 2021, so continuing their recovery from what has been a difficult few years — where their very existence had been threatened," Fenlon said in an email. "Capital is once again flowing into the sector after many years of continual outflows.
Larger funds outperformed their smaller peers
Larger funds with more diversification outperformed smaller funds and those with more concentrated portfolios. Funds with more than $1 billion in assets under administration returned 5.1%, while funds holding more than 50 funds were up 5.7% for the first half of the year.
"It is the larger managers who have brought greater diversification to their portfolios, which were able to generate better returns," Fenlon says. "Their ability to scale due diligence and more readily re-position their exposures surely contributes to these results. Boutique operators play a key role, but size does bring many benefits that are hard to replicate on a smaller scale."
Funds with over $1 billion in assets under administration posted an average return of 5.1% and a median return of 4.4%, while funds with $500 million to $1 billion in assets under administration returned 4.9% on average and 5% as a median. Ninety-two percent of funds with more than $1 billion in assets had a positive return for the first half, while only 83% of those with $500 million to $1 billion had a positive return.
Funds with $200 million to $500 million posted an average return of 4.7% and a median return of 5%, while funds with less than $200 million posted a 3.6% average return and 3.5% median return. 93% of funds with $200 million to $500 million had positive returns for the period, while 92% of funds with less than $200 million posted a positive return.
Inflows for funds of hedge funds
Net capital flows for the funds of funds administered by Citco stood at $2.5 billion for the first half of the year. That marks a significant turnaround from 2020, when net flows were mostly flat as inflows and outflows largely canceled each other out. In 2020, most of the inflows when to the larger funds of funds, while smaller managers saw net outflows.
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Funds Of Hedge Funds Continued Their Solid Pace In The First Half - Forbes
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