LONDON --Now on display at the center of the British
Museum's Great Hall, a special exhibition tells the story of
the brutal quick death-by-volcano of the once-bustling ancient
city of Pompeii.
Similar themes were up for discussion last week one floor
down in the corporate event space, where some of the biggest
names in funds of funds gathered for the 2013 InvestHedge
For funds of funds, investment consultants have represented
a Vesuvian threat that might annihilate their
long-debated double layer of fees. Finally, midway through
fifth consecutive year of either losing or barely
maintaining assets (net of performance), fund of funds seem to
have settled on a counter-argument that puts consultants on the
The pitch goes roughly like this: Invest with a fund of
hedge funds because at least you'll know how your investment
performed. That compares with the consultants' default position
that they're experts retained by other big investors, so you
should trust them.
As Joseph McCarthy, CIO of fund of funds Islandbridge
it, "The level of complexity and the intensity of what's
involved in researching originating and the ongoing monitoring
of the managers means that some family offices are going to
partner with people who are experts at it and have an auditable
track record for making money."
The last bit is a compelling strike against consultants, the
by-the-hour bogeymen who studiously avoid being judged on the
performance of their recommendations. On one panel, a 20-year
veteran of the fund of funds industry lamented that he was
losing mandates to consultants who make recommendations, but do
not take responsibility. Today
the New York Times took a similar tack, lamenting
that the pension world "has conspicuously turned a blind eye to
demanding track records from their most influential advisers,
Consultants are likely to argue that they provide a broader
service than just recommending the highest-performing managers.
"We're not solely just judged on the performance of the funds
themselves," said Alison Clark, head of hedge fund
research at pension consultancy Hymans Robertson last week,
speaking on the "Art of Due Diligence" panel. In the "Why Us"
section of the Hymans Robertston website, the company says "We
are steadfastly independent in every possible way, from our
ownership to our advice."
There is recent evidence that funds of funds, the
performance of which are available for all to see, are making
money. The median multimanager fund is up 3.83% this year,
according to the
InvestHedge Composite Index. That's naturally going to
trail a booming global equities market, but perhaps
surprisingly it's only a single basis point behind the median
Americas single manager fund, which presumably achieves that
return with higher risk (or at least less diversification)
– and which has one fewer layer of fees to weigh down
the final results.
That's something to brag about, and yet it doesn't appear
that end investors are getting the message.
In one particularly bracing moment at the Forum, a billion
dollar institutional investor said he simply did not believe
there was value in paying funds of funds to select managers and
monitor performance for him, but he appreciated them doing the
boring work of operational due diligence and regular office
He said this while seated next to a top executive at a
large, brand name fund of funds--one in which he later
admitted his very pension is invested!
A solution may lie in, of all things, better marketing.
While their single manager counterparts have at least generally
settled on a consistent pitch as strongholds of uncorrelated
alpha, funds of funds have employed a dizzying range of
Are they risk managers? Shamans who can feel for the next
hot strategy? Spotters of new talent? Operational wizards?
Negotiators for lower fees?
Even the industry's logos are up for debate, says
InvestHedge keynote speaker Davina MacKail, a marketing
consultant. She took one look at the branding on display and
pronounced the group a "hotbed of…interesting logos that
could use with a whole lot of improvement."
"[They give] that essence of conservatism, stability, you're
in a safe pair of hands, we're not going to risk your money,
you're not going to lose with us. That’s what it's
saying, but I actually think hedge funds are risk takers.
That's why hedge funds materialized in the first place," she
Don't try to gussy up David Smith, chief investment officer
of the $5.89 billion GAM Multi-Manager platform.
"The truth is it's very boring but painstaking. You get in
front of the managers, you talk to them, you go back, you get
your facts, you get your opinion, you cross reference it," he
said. "There's nothing magical about what I do. It's just quite
a lot of hard work."
Try putting that on a bumper sticker.