The study – printed in the group’s hedge fund newsletter – states that the line between traditional and alternative managers is disappearing as more traditional managers establish a foothold in the hedge fund industry. Contributing to this as well is the impending regulation of the industry by the Securities and Exchange Commission (SEC). Because of multiple factors – increased institutional investor activity in the space, asset growth, and more instance of malfeasance, according to Mercer – the SEC has taken action, and, in the process, created a more established and mainstream industry.
Also, according to the study, multi-strategy funds are beginning to offer benefits to institutional investors – namely, lower fees – but the company is still generally advising that hedge funds-of-funds be used.
“Despite these considerable advantages, we still feel the benefits of using a fund-of-hedge-funds manager are more compelling than using a single firm with multiple strategies. One key point of distinction is that well-managed fund-of-hedge-funds offer broader diversification than multi-strategy programs,” said Jeff Gabrione, a research consultant within the company’s US investment manager research group. “As with any investment decision, the selection must fit within the client’s overall objectives and constraints.”
Fund-of-funds invest in multiple hedge funds and add another layer of fees to the investment process while often providing diversification and investment consultant services; multi-strategy funds, on the other hand, offer a variety of strategies within one fund.
Mercer Investment Consulting ( www.mercerIC.us ) is a provider of global investment consulting services. The newsletter is available for download by subscription at the company’s Web site.