Client demand and higher fees are luring more investment consultants into money management, particularly hedge funds of funds.
Consulting firms are managing at least $2.3 billion in discretionary alternatives portfolios, mostly focused on hedge funds. The total most likely is much larger, because many consultants do not report their assets under management.
The total in hedge fund-of-funds or diversified alternative strategies would top $8 billion were it not for the spectacular wind-down this year of Russell Investments' $6 billion hedge fund-of-funds offering. Tacoma, Wash.-based Russell now manages just $100 million in hedge fund of funds (Pensions & Investments, July 21 and June 23)
Notable names making their first forays into hedge funds of funds include Angeles Investment Advisors LLC, Evaluation Associates LLC and Clontarf Capital. They've launched or are preparing hedge fund or diversified alternative funds of funds, either as stand-alone strategies or as part of a total portfolio outsourcing.
Consultants' approaches range from non-discretionary portfolio construction advice to managing customized separate account hedge funds of funds to commingled hedge funds of funds.
The success of early movers in the consultant-managed alternative fund-of-funds arena has helped prod others to make the move.
“This is a natural progression into implemented consulting, where the consultant carries the advice into discretionary investment decision-making,” said Michael Rosen, Angeles Investment Advisors' principal and chief investment officer in Santa Monica, Calif. “Some clients like the single point of accountability. And for many clients, outsourcing is a way to lighten their administrative burden. Managing increasingly complicated portfolios, especially in hedge funds and other alternatives, is just taking too much staff time.”