Funds Hub

Funds of hedge funds are taking a greater share of the pain in the industry’s downturn.

Even as overall outflows from hedge funds slow, redemptions from fund of hedge funds are accelerating. 

Figures this week from Hedge Fund Research showed that while overall hedge fund redemptions fell in Q1 to $104 bln from $152 bln in Q4, fund of hedge fund redemptions actually rose.

Investors pulled out $85 bln from funds of hedge funds in Q1, up from $50 billion in Q4, meaning in the first three months of the year they accounted for majority of industry outflows.

Time lags may be a factor — funds of hedge funds often put in redemption requests on underlying funds long before they have to pay out to their own investors.

But the Madoff scandal, in which several funds of funds were caught up, still overshadows the industry.

“Some people looked closely (at Madoff) and missed the structural weaknesses, or for one reason or another didn’t look closely enough and because of performance accepted those types of things, when with the benefit of hindsight they shouldn’t have,” said HFR President Ken Heinz.