Reinventing the fund

Lower returns in the hedge fund industry and increasing sophistication among investors are driving some funds of hedge funds to use derivatives - with a few of the largest morphing into multi-strategy hedge funds. By Jayne Jung

Only a fewindependent funds of hedge funds will survive the next five years. This view, expressed by Don Putnam, a managing partner at advisory merchant bank Grail Partners in London, is echoed by many analysts in the industry.

The argument is that funds of hedge funds face big hurdles from heightened competition, high correlation to the equity markets and a decline in returns. In addition, some investors, such as endowments, are becoming more comfortable with hedge funds as an asset class, and