Multi-Asset Trend as Feeders Decline

Diversified portfolios of various types of investments may replace fund of hedge funds.

For the latter, bad times continue. They’ve shed more assets in July and had net inflows in only three of the past 24 months, according to BarclayHedge and TrimTabs

Large institutions have come to prefer investing directly in hedge funds rather than paying a feeder fund to invest for them—especially after well-known feeders channeled capital to Bernie Madoff.

But many smaller institutions still like to have an outside manager to mediate alternative investments. Products for this market segment often include private equity, real estate and natural resources as well as hedge funds.

Some clients prefer a ready-made mix of traditional and alternative investments. The idea is to get exposure to different markets through diverse instruments, for example investing in emerging markets via an exchange-traded fund and in American start-ups via private equity.

Thus a Gottex fund for endowments combines common stocks, ETFs and mutual funds with hedge funds and private equity. Around 40% of the assets are in hedge funds. Among them is Obsidian, a fixed-income vehicle managed by BlackRock, and the futures trader Blue Trend.

Will such multi-asset offerings take the place of conventional funds of funds? One investor says while they are relatively new and the track record is sparse, there is a market niche for the multi-asset product.

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Tags: BlackRock, Blue Trend Fund, Gottex Group, Obsidian Fund, TrimTabs