The Rise and Fall and Rise Again of Fund of Funds

We are privileged to witness now the resilience of our industry, bouncing back after a year of negative returns, liquidity-driven gates, the loss of investor confidence, and the exposure of less-than-exemplary specimens within the business, all of which led some to herald the demise of FoHFs. Today we are seeing positive signs from the market that lead us to believe we are well on our way toward and beyond recovery:

"The FOHF industry is being forced to reinvent itself and will emerge smaller but in better shape than many had expected" Reuters, Aug 28.

"The hedge fund industry is on the brink of recouping all its investment losses ...." WSJ, Oct 26.

"Hedge fund assets may top the previous $2 trillion high by the end of next year..." Bloomberg, Nov 10.

The crisis has forced funds to re-focus on what they should have been doing all along, or highlight those things that they were doing all along. Fund of funds have re-established their place in the food-chain by focusing on their core business: manager selection, due diligence, internal controls, uncorrelated returns. Self-administered funds are flocking to administrators, and firms are bolstering up their internal systems - replacing Excel with formal products. Where necessary, managers have carefully restructured their funds to retain current investors and attract new ones. FOHFs perform deeper analysis of the portfolios they invest in and their liquidity characteristics.

The current year-to-date returns are admirable, new money is flowing in, the tide of net redemptions is ebbing, total assets are on the rise, and there is renewed excitement in the industry.

Data courtesy of TrimTabs Investment Research and BarclayHedge

Cogency has spent the quiet period increasing the breadth and depth of our product, technology and customer base. Now, as the industry prepares to rise again, I am pleased to share with you some of our recent news.

Jeffrey Axelrod
CEO, Cogency Software

Cogency's innovation and uniqueness was recognized on Sept 15, 2009 with the issuance of a patent for our role-oriented-development-environment, Cogency Wisdom, which serves as the foundation for our FoHF products. This multi-role environment allows you, the end-user, to continually participate in the application creation process by using 'table-calculators' and 'filter-builders' to define your own reports.

We continually enhance our platform with new technology features that benefit all products and all clients. Recent features include:

• Multi-Dimensional Secure Access for fine grained access control
• Server Clustering for greater scalability and faster report generation
• Auto Snapshot PDF for professional-looking information delivery to investors and managers

A handful of fund administrators with global presence have chosen Cogency for their FoHF accounting needs. Our products are handling the accounting for an increasingly larger number of funds, with ever growing complexity. Administrators choose Cogency for fund of fund administration because of the strength of our accounting features:

• Double entry general ledger fund accounting
• Complete multi-currency support for base currency, portfolio investments, investor investments, ledger accounts, and currency hedging
• FoHF specific portfolio management, pricing, and liquidity analysis
• Side-pockets, segregated portfolios and uneven allocations in both partnership and class/series accounting
• Internal fund relationships
• Configurable cost-basis calculations

This year there have been a preponderance of SPVs, liquidating trusts, segregated portfolios, redemptions-in-kind, and other portfolio and fund mechanisms that have taken what was once a simple master/feeder structure and turned it into a complex web of ownership and allocation. Clients have used Cogency extensively to model these real-world concepts directly in the accounting, so that the business vocabulary matches the accounting vocabulary.

Cogency's visualization of the relationships between the entities has helped many large and small funds get the 'picture' of the entities they have created.