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From Kirsten Bischoff, Opalesque New York:

Hedge funds and fund of hedge funds (FoHF) have a complicated relationship history. In past years hedge fund managers registered quietly levels of animosity at the fund-of-funds vehicles they often referred to as "fees-on-fees". But, FoHFs have been amongst the largest investors into single manager funds and so these feelings were largely put aside as the allocations kept coming.

However, as the credit crisis cycled into the financial crisis FoHFs were swamped with redemption requests by investors requiring additional liquidity, as well as those spooked by the few FoHFs caught investing into the Madoff fraud. As redemptions began to hit FoHFs those managers were forced to redeem from underlying managers, many times even those managers that had been delivering positive performance.

A recent survey of the twenty five largest hedge fund administrators, performed by research group Carbon 360 (a subsidiary of Opalesque) showed that losses in the FoHF industry were still hitting at a rate of 32% as late as 1Q09. This meant hedge funds finally regaining ground with outperformance still had to deal with FoHF redemptions and the relationship seemed to reach a boiling point.

Easing of redemptions... However, as the tide of redemptions across the hedge fund industry has slowed managers find themse......................

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