Liquidity mismatch in funds of hedge funds

One aspect of the liquidity crisis which was entirely predictable was the problems at the fund of hedge fund (FoHF) level, says Patrick Fenal, CEO of Geneva-based Unigestion.

He says FoHFs had long been operating with a liquidity mismatch whereby most of them offered investors better liquidity than the underlying funds in their portfolios.

In 2007 Fenal warned about what he called the “liquidity mismatch time bomb in FoHFs”. He argued the mismatch allowed FoHFs to generate better returns, but also created significant hidden risks for investors and underlying hedge funds.

European regulators not only missed the dangers of allowing this mismatch to persist, they

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