Embarrassment, upset and underperformance. After causing its customers a battery of disappointments, the fund of hedge funds industry, once the single largest investor in hedge funds, may count itself lucky that its total assets under management has fallen by only half.

The past 18 months have proved a turning point - for the worse - for many funds of hedge funds, which take their clients' money with a view to investing them in hedge funds. As late as May 2008, the industry could point to a history of expansion that stretched back 15 years - its assets under management had grown to $823bn in more than 3,600 funds worldwide, according to data provider Eurekahedge. As a supplier of capital to hedge funds, it had grown from 15% of the average hedge fund's capital in 1994 to 60%, according to investment consultant Hennessee Group.