The hedge funds that survived the global financial crisis might be back above their high watermarks, but hedge-fund-of-funds have not recovered in lockstep, according to the visiting managing director of alternatives asset consultant, Cliffwater.

Tom Lynch of Cliffwater, which has a strategic partnership in Australia with Sovereign Investment Research, said institutional investors were shunning hedge fund-of-funds in favour of direct investments into hedge fund managers’ pooled funds.

“Only one of the world’s top 20 hedge fund-of-funds actually grew their assets in 2009, and that was Blackstone off the back of a very large allocation from China Investment Corporation. You look at UBP, it topped out at US$30 billion and now has US$8 billion, Ivy Asset Management which had US$10 billion and is now shuttered…a lot of retail money from Europe fled and hasn’t come back, while the institutions don’t want to risk being co-mingled with the retail investors anymore.”

In response, big institutional investors were moving toward direct relationships with a handful of hedge funds, and demanding more transparency from them in terms of their strategy and current positions in the portfolio, Lynch said.

While “fewer than 5 per cent” of the hedge funds into which Cliffwater directed clients had put up redemption gates during the crisis, Lynch said the post-crisis norm was for hedge funds to offer tiered fee schedules, where clients willing to lock up their money for a longer period paid a lower mangement fee.