Funds of hedge funds: Once, twice, three times a loser

Getting caught out on Amaranth was bad enough. Getting caught out again on Sowood Capital? Not great either. And with hedge funds getting hit left, right and centtre, just how many times can funds of hedge funds keep telling us everything’s alright? Arden Asset Management, to name but one fund of hedge funds, was caught out on both counts. Tremont was another. And the response that rolls off the tongues of funds of hedge funds officials whose underlying managers go bust is always the same – we spread risk by investing in many underlying managers, so the damage is limited.