Investors are cutting hedge funds more slack. In Deutsche Bank’s latest survey of investor attitudes to alternative investments, more than half of respondents felt comfortable with locking up their money with a hedge fund for two years or more – double the proportion in 2005. Almost two-thirds would consider investing in hedge funds with so-called “side pockets”. Managed separately from main funds, these hold less liquid investments and money invested in them usually cannot be redeemed until the underlying assets are sold.

All are symptoms of the search for returns. Hedge fund indices suggest average returns for the industry last year of 13-14 per cent – less than the S&P 500. In those circumstances, less liquid but potentially lucrative investments such as real estate and private equity are tempting. However, they require a longer-term approach, so hedge fund managers, and many investors, are loath to leave their funds open to the prospect of a wave of early redemptions and forced sales. Hence, longer lock-ups and more use of side pockets.