The average fund of hedge funds is less than half the size it was in 2009, with smaller managers now accounting for a larger portion of the industry, according to new research.

The report, by data provider Preqin, drives home the fact that the fund of funds industry has undergone a seismic shift since 2008 when it lost a quarter of its assets and saw its credibility shaken by poor performance, restricted redemptions and investments in Bernard Madoff's fraud.