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 Chackoâ€™s firm, Kite Partners, into Auda is consistent with this trend. Mr. Chacko was named Chief Investment Officer of $5 billion Auda International LPâ€™s hedge fund investment arm. His associate Karl Neumar joined Auda Hedge as a Vice President. Kite Partnersâ€™ funds will become part of the company.
Auda chief executive Ernest Boles says Mr. Chackoâ€™s quantitative approach will help meet client needs for specialized products and customized investments: â€śWe wanted to add someone with a strong quantitative background.â€ť Adding Kiteâ€™s assets makes it a win-win situation for both firms, he said.
Mr. Chacko says Kite Partnersâ€™ investments will benefit from the depth and breadth of Audaâ€™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 companiesâ€”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.