Institutional Investor's Alpha Magazine - October 2007 - (Page 81)

Research Center Fund of Funds 50 Proof Positive OUR 6TH ANNUAL RANKING OF THE WORLD’S BIGGEST MULTIMANAGER FIRMS FUND OFFUNDS Having survived this summer’s market meltdown with minimal damage, funds of hedge funds are making a strong case for the beneﬁts of their brand of diversiﬁcation. Investors are listening. By Christopher O’Leary T he chaos created by the summer meltdown of the subprime mortgage market wreaked havoc among many single-manager hedge funds. It even led to an early demise for a handful of funds, including Bear, Stearns & Co.’s HighGrade Structured Credit Strategies Master Fund and its High-Grade Structured Credit Strategies Enhanced Leverage Fund. For funds of hedge funds, however, the summer’s troubles turned out to be less of an event. Although fundof-funds managers didn’t walk away completely unscathed — many suffered losses in the neighborhood of 2 percent — they say their performance is a validation of the benefits of diversification and professional oversight these ﬁrms have long trumpeted. “Two or three years ago, there was a big debate about whether multistrategy hedge funds would take the place of funds of hedge funds,” says Sean Simon, co-president of Jericho, New York–based Ivy Asset Management Corp., which manages $15.1 billion in funds of funds. “But after the last six months, that debate has lessened considerably. If you made the wrong bet on a single manager, your performance will suffer more than if you invested in a diversiﬁed fund of funds.” During a period rife with troubles for the hedge fund industry — from the September 2006 meltdown of Greenwich, Connecticut–based Amaranth Advisors, which lost $6 billion in less than two weeks, to the subprimemortgage-related hedge fund debacles of the past six months — funds of hedge funds have remained an attractive option for investors. Nowhere is this more evident than in Alpha’s 2007 Fund of Funds 50, our sixth annual ranking of the world’s biggest multimanager hedge fund ﬁrms. The 50 firms on this year’s list managed a combined $742 billion in assets as of June 30, 2007, up 34.8 percent from the $550 billion the top 50 controlled in 2006. Topranked Zurich-based UBS, whose assets grew by nearly $17 billion, reclaims the throne, easily outdistancing London-based Man Investments, last year’s No. 1 firm. UBS currently boasts $54.7 billion in assets under management. And though Man falls a notch in the ranking, the firm still grew its assets by more than $10 billion, to an impressive $50.3 billion as of the end of June. Much of the reason for UBS’s drop in last year’s Fund of Funds 50 was that the bank sold its $18 billion GAM fund-of-funds businesses to Swiss rival Julius Baer Group (No. 8 on this year’s list). Geneva’s Union Bancaire Privée ($45.8 billion in assets), Permal Asset Management ($35 billion) and HSBC Alternative Investments/HSBC Private Bank ($33.6 billion) round out this year’s top ﬁve, holding tight to the same spots they won in 2006. Omar Kodmani, senior executive ofﬁcer for Permal, says recent fund blowups have challenged the thinking that a single fund manager running a host of diversiﬁed strategies is adequately protected against downturns. “The issue with multistrategy single managers is that even though there may be multiple trading strategies, there is still idiosyncratic risk,” says Kodmani. “If something is wrong with the house itself, the beneﬁt of the diversiﬁed strategy is nil.” Several firms make huge leaps in the ranking. Blackstone Alternative Asset Management, the fund-of-hedgefunds arm of private equity giant Blackstone Group, added nearly $10 billion in assets, jumping ﬁve places, to No. 10, with $23 billion under management. Switzerland’s Gottex Fund Management jumps nine places, to No. 22, as its assets more than doubled, rising from $5.3 billion to OCTOBER 2007 • INSTITUTIONAL INVESTOR’S ALPHA • 81

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - October 2007

Institutional Investor's Alpha Magazine - October 2007 Contents Letter from the Editor Longs & Shorts Pension Corner: Applied Knowledge The Good Guys: Autism Advocate Interview: Nerves of Steel Cover Story: Ivy League Education Alpha Awards: Top Service Providers: Trying Times Strategies: Passage to India Profile: The Oracle of Irvine Alpha Bytes: Futurama Research Center: Funds of Funds 50 Unhedged: Commentary: Crisis? What Crisis?

Institutional Investor's Alpha Magazine - October 2007

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