Infovest21 Survey: Funds of funds add more nimble managers, prefer small to medium-sized managers

In its just-completed survey of funds of funds, Infovest21 found that over the past year, funds of funds’ most frequent change, as cited by 41% of those surveyed, was adding more nimble managers to their underlying portfolios. Another 38% said they became more liquid/provided more liquidity.

Lois Peltz, president of Infovest21, comments, "While one-third of the funds of funds don’t have a preferred asset under management range for underlying managers, the average range of those that have a preference ranged from about $140 million on the low end to $1.4 billion on the high end."

Other highlights of the survey included:

• The average asset size of the fund of funds organization responding was $1.7 billion. The respondents said, on average, at least $1.4 billion is needed to “survive and thrive.”

About one-half have seen an increase in assets under management while 18% have seen a decrease over the past year.

• High net worth/family offices make up over one-half of the average investor base while financial institutions comprise 18% and pensions 14%. Foundations, endowments and sovereign wealth funds comprise the remainder.

• Over 60% of the average fund of funds investor base is located in the US with another 18% coming from Europe and 5% from the UK. Japan, Asia, Middle East, Canada and Australia account for the remainder.
• The average return/volatility target for 2011 is 11.8%/7.7%.

• The average fee structure is a 1.1% management fee with a 6.1% performance fee.

• Almost two-thirds have considered a strategic partnership while almost one-half considered acquiring another entity. Another 30% have considered merging or have merged with another firm. Adding to assets and/or distribution channels was the main motivation in these efforts.

• Funds of funds’ largest concerns about the hedge fund industry are loss of investor confidence, too much focus on larger hedge fund managers and negative industry reputation.

Sixty-two funds of funds completed the survey during January 2011.

The entire Infovest21survey results are available in a just-released 45 page report.