* WSJ: Fund of funds

Redemptions, Drop in Value Have Some Forecasting Gloom

Summary: "You are looking through a market that has been hit with a liquidity shock impacting all strategies, and hedge funds are more concerned about operational issues, reining back risks and holding cash in anticipation of redemptions," said Phil Irvine, co-founder of recently formed institutional consultant PiRho Investment Consulting, who predicts declines this year of 10% to 15% after a "pretty awful" September and despite a possible bounce in November and December.

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Some might reason that the funds' losses don't justify the 1% management and 10% performance fee funds of funds charge on top of 2% and 20% fees for individual hedge funds. Robert Howie, principal in Mercer's investment-consulting business, said funds of hedge funds will survive but take a "diminishing slice of a growing pie" as institutional investors and other sophisticated investing institutions launched their own investment programs.

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Mr. Howie predicted that well-resourced managers will launch more funds of funds focusing on specific strategies such as distressed debt or commodities -- as opposed to more generic hedge funds -- and there will be increased competition from infrastructure and clean technology funds, although he said investors were "not rushing into new investments."


Detail: Funds of Hedge Funds are Under Pressure