Biggest managers continue to hoover up assets, says PerTrac

InvestorsLaunchesOperational Risk
08 May, 2012

Approximately 60% of the total hedge fund industry AuM is controlled by just 322 managers, according to data from PerTrac.

These managers, all with at least $1 billion in AuM, account for a mere 3.9% of reporting funds but control $1.08 trillion. Furthermore, the total reported AuM of single manager funds stood at $1.8 trillion at year-end 2011, an increase of 4.19% from 2010.

“It is clear from our research that the big funds are getting bigger and more dominant despite smaller managers consistently outperforming them. A lot of institutional investors are still reluctant to allocate to smaller managers because they do not always have the infrastructure or risk controls. Our research too has indicated that big managers tend to have lower volatility,” said Jed Alpert, head of global marketing at PerTrac.

However, the number of funds of funds (FoHFs) reporting their data fell by 4.8% to 3,388 between 2010 and 2011. Nevertheless, the number of FoHFs with more than $1 billion AuM grew by 17.8% although sub-billion dollar multi-strategy managers experienced a decline. FoHFs managing between $251 million and $500 million saw the largest fall in numbers, decreasing by 15.9%.

“Much like single managers, investors prefer larger FoHFs as they believe they offer greater safety and security. Despite a lot of commentary questioning the viability of FoHFs, a lot of these organisations offer quality operational due diligence for investors which do not have these resources,” said Alpert.

Managers (hedge funds and FoHFs) based in the US account for $950 billion or 42.3% of total reported AuM, followed by the UK, which has $574 billion, or 25.6% of total reported AuM. However, the US saw a 2.6% drop in the number of reported hedge funds, according to PerTrac.

“The US and UK continue to be the dominant hedge fund jurisdictions. However, there is a lot of regulation coming out of both of these regions and it is possible the number of hedge funds could decline as the barrier to entry becomes ever higher with the regulatory costs,” commented Alpert.