Fund of funds deliver record 18.7% return in 2015 - INREV

Investors are reaping the benefits of scale and diversification from investments in funds of funds which delivered a record total annual return of 18.7%, according to data compiled by INREV and ANREV.

The organisations' latest Fund of Funds Study 2016 revealed the strongest performance for funds of funds to date, continuing a three-year upward trend.

Though performance was not equal across vehicle size, geographic region, style, structure and vintage, there was a consistent improvement in performance for virtually all types of funds of funds, with double-digit returns for large numbers of vehicles.

According to Henri Vuong, INREV’s director of research and market information, "Seemingly, this report highlights the predominance of large, core funds of funds focussed on global and European strategies. It also sheds light on subtle changes in scale and structure that suggest greater alignment between investors and fund managers. This is all reflective of a general market sentiment that’s tilting more and more toward increased control of risk and greater transparency. It’s a mood that we believe will only intensify in the continuing climate of economic and political uncertainty."

According to the study, large vehicles (with NAV in excess of €300m) achieved returns of 22.1%; core funds 20.4%; open-end funds 19.4%; and funds targeting a global strategy 26.0% – which represents a second consecutive year of double-digit growth.

Core vehicles make up the lion’s share of the combined INREV and ANREV universe by value, representing 71.8% of the total NAV for funds of funds. Likewise, there is a dominance of open-end vehicles which currently account for 71.4% of total NAV, while vehicles following a global or European strategy command an overwhelming 86.2% of total NAV.

On average, core vehicles have lower blended gearing levels of around 41.4%, as well as higher average capital commitments at €32.2m of equity compared with €19.5m for value added and €18.7m for opportunity funds.

Similarly, core vehicles typically invest both in more funds (16 on average versus eight for value added and nine for opportunity), and in more managers (12 on average versus eight for value added and seven for opportunity).