Hedge funds of funds, which have been among the more widely used ways of investing in hedge funds in the past few years, have recently been declining in popularity. New York State’s $150bn pension fund is one of several that have shifted money out of funds of funds, instead opting to invest directly in hedge funds that it chooses itself.

A fund of funds, for a small additional fee, selects a basket of hedge funds for an investor. These vehicles became popular because, in a rather secretive industry, investors often found it difficult to get information about which hedge funds were worth investing in. A fund of funds takes on the burden of research, sifting through the 8,000 funds to choose the best. It also shifts its assets around among different strategies, reducing a particular asset class by redeeming or halting inflows into certain funds or loading up on others.