Reconsidering Funds of Hedge Funds

Foreword

The passage of the Uniform Prudent Investor Act of 1994 (UPIA) created an opportunity for the growth and development of Funds of Hedge Funds (FoHFs) providing institutional investors access to the high return of hedge funds by allowing them to diversify their risk exposure and to delegate their due diligence responsibilities to these FoHFs. However, the global financial crisis in 2008 was a major challenge to FoHFs. Poor returns and the flight of institutional capital during the financial crisis have led to a major reduction of assets under management by FoHFs. Recovery has been slow despite improved returns subsequent to the crisis. The economic environment remains a challenge for small FoHFs, but large FoHFs see opportunities and ...