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From Kirsten Bischoff, Opalesque New York:

Hedge funds are hungry to rebuild their asset base.

Institutional investors still reeling from devastating performance losses are seeking alpha.

It would seem like a match made in heaven.

However, "the message institutional investors are sending seems quite clear: hedge funds need to better align their interests with those of investors if they hope to raise capital from the institutional space." So concludes new research published by Bank of America Merrill Lynch.

The firm surveyed 111 institutional investors and produced a series of roundtable events in late 2009 to learn more about institutional investor concerns, and although hedge funds have 2009's record-breaking rebound performance on their side, institutional investors are adamant about seeing real changes to fee structures, liquidity, absolute returns and transparency in return for allocations.

"Investors and consultants alike want more than just 'skin in the game'.  They want more investor friendly fee schedules and liquidity terms that match the liquidity of underlying investments," says Steve Keller, head of Americas financing sales at Bank of America Merrill Lynch.

The current environment may just be set up so that hedge fund managers find themselves the first to blink when it comes to these demands. What was a tight asset-raising environment before, is quickly becoming an arena more competitive than any in memory. ......................

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