Fund of Funds – The Bridge That Never Was (Part 2)
Back in May this year, I wrote a post about Funds of Funds and how they were little more than an additional layer of fees for their investors. In recent market mayhems, Funds of Funds were expected to prove themselves and provide the un-correlated returns of the markets, due to their arguable diversification abilities.
It does look like I’m not the only one raving about the gloomy outlook for Fund of Funds operators. The Wall Street Journal recently reported that Fund of Funds have fallen about 11 percent in value. Eurekahedge’s Global Fund of Funds Index is down a shocking 11% YTD as of the time of this post, performing worse than the EH Asian Index which is down 9.85%. It’d be really interesting to see an FOF operator convince potential/existing investors about their lower volatility relative to the single funds’.
Something interesting appears to be happening in the FOHF scene though, something innovative. Hedge Fund news websites reported that Permal Investment Management Services launched a Fund Of Funds to buy shares in hedge funds at sizeable discounts (25 to 30%) to their market value as more investors become distressed sellers.
I agree….Recently just before the financial crises took shape, I was chatting with a private banker who was highlighting the plus points of diversification of funds by Indians investing overseas. To this I pointed out that India enjoys one of the highest interest rates, if not only a high GDP growth rate.
He shrugged this off…..today he is twiddling his thumbs as investors come knocking on the door demanding what has become of their investments and promised returns.
Admittedly India has equally been affected by the global flu, but I feel that it has relatively speaking weathered the storm better. Credit largely goes to our conservative regulators, who were wary when it came to opening the doors to foreign investment in the financial services arena.