There is no shortage of capacity in hedge funds and fund of funds in spite of the sums of money going into the sector, with only about 15 per cent of funds at their limit. But much of the available capacity is of variable quality, mostly incapable of generating the high returns investors have been led to expect, according to a new report.

The survey* of hedge funds, mainstream funds, pension funds and hedge fund administrators with combined assets of $23,000bn by consultancy Create and KPMG found hedge fund managers fall into three groups.