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From Kirsten Bischoff, Opalesque New York:

While the imminent demise of fund of funds (FoHFs) was predicted often in the news through early 2008, stronger performance across the industry in 2009 quieted much of that discussion. The surviving FoHFs were busy regrouping and working to show investors ways they could achieve better liquidity without changing their core business structure. Things looked brighter.

However, now in 2010 many of the interviews and stories that we have covered have shown a recurrence in ambivalence toward the future of FoHFs. Frustrated single manager funds vent that FoHFs (still the largest investors into hedge funds) are all investing into the same group of large, established managers. FoHFs, which were previously known for sourcing and seeding new talent, are concentrating mainly on their own survival in the present rather than building talent for the future. And few single strategy managers seem willing to let go of their anger toward fund of funds that had to redeem assets at the height of the liquidity crisis.

So what is the future for FoHFs? What are they doing and where are they investing? It was recently commented to Opalesque that FoHFs would likely survive in two separate incarnations: as enormous, multi-billion dollar firms or as boutique specialty firms focused on one special area of investing (ie seeding). However, traditional firms that specialize in asset diversification, strong due diligence, and......................

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