The funds of hedge funds that are too hot to handle

End investors and hedge fund managers are increasingly concerned about those funds of funds that take a hot money view, rapidly switching cash in and out of hedge funds. Some of the horror stories risk tainting the entire industry. Helen Avery reports.

“EVERY HEDGE FUND manager I speak to has at least one ‘hot money’ fund of hedge funds horror story,” says a fund of hedge funds executive. Horror stories are indeed plentiful. “We’ve all heard the story of the hedge fund that went from $100 million to $1 billion in a year, and then back to $100 million a year later due to funds of hedge funds inflows and outflows,” says Adam Sussman, senior research analyst at Tabb Group.

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