Close to half of the money flowing to hedge funds goes through funds of funds, though their share may be shrinking nearer to 40%. Smaller funds of funds face increasing pressure; a number of them closed down this year.

Others are merging or joining larger firms. The integration of George Chacko’s firm, Kite Partners, into Auda is consistent with this trend. Mr. Chacko was named Chief Investment Officer of $5 billion Auda International LP’s hedge fund investment arm. His associate Karl Neumar joined Auda Hedge as a Vice President. Kite Partners’ funds will become part of the company.

Auda chief executive Ernest Boles says Mr. Chacko’s quantitative approach will help meet client needs for specialized products and customized investments: “We wanted to add someone with a strong quantitative background.” Adding Kite’s assets makes it a win-win situation for both firms, he said.

Mr. Chacko says Kite Partners’ investments will benefit from the depth and breadth of Auda’s resources and qualitative expertise. Auda has a private equity fund of funds business in addition to the hedge fund portfolios.

Big funds of funds like Permal and Quellos are already part of large asset management companies—Legg Mason and BlackRock respectively. The alternative investment behemoth Man Group, combining funds of funds with a futures trading program, continued to grow in the past year despite market turmoil. Consolidation is clearly the winner at all levels.

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