When word of liquidity stress at Bear Stearns, and then Lehman Brothers, emerged in 2008, JANA was able to terminate both investment banks as prime brokers to the underlying funds in Triplepoint. “That structure enabled us to keep a currency hedge in place last year,” O’Dea said. Managers refusing to offer a managed account were often hiding operational flaws in their funds, he said. “They’re almost at capacity, or it normally identifies a problem with the manager’s operational infrastructure. It means they can’t split trades between the main fund and your fund.”

O’Dea said the liquidity problems afflicting many hedge FoFs originated from their response to a 2006 ruling by the Securities and Exchange Commission (SEC) in the US, which required all hedge funds to register with the regulator. To escape regulatory oversight, HFoFs implemented lock-ups of between one and two years, which placed them outside the SEC definition of a hedge fund. “That was a problem leading to the issues of last year when the Australian dollar fell and hedge FoFs weren’t able to liquidate underlying investments to fund forex margins,” he said.