According to HFR, investors continued to withdraw capital from Fund of Hedge Funds, which experienced $4.4 billion in 3Q outflows, the 6th consecutive quarter of outflows. Total capital invested in Fund of Funds increased to $635 billion, as the HFRI Fund of Funds Composite Index gained +2.4 percent for the quarter. The HFRI Fund of Funds Composite Index is up a further 1.1% so far this quarter, making YTD returns to the end of November 3.56%. This compares with the HFRI Fund Weighted Composite Index across all single managers which is up 4.89% YTD. If this were the annual return for single managers for the whole of 2012 it would rank as in the bottom quartile of returns seen over the last 20 years.
As large institutional investors move to direct allocation to hedge funds the outflows from Fund of Hedge Funds have become a regular feature of the industry. HNWI subscriptions have not compensated for the institutional outflows, and with fee pressures and cost increases it is no wonder that the rate at which Funds of Funds are closing has accelerated slightly in 2012. HFR calculates that since the start of this year 6% of Funds of Hedge Funds have closed.