Finance and Economics；Funds of hedge funds；Going, going, gone?

Other funds of funds, which allocate investors' money to a portfolio of different hedge funds, are also eyeing a sale. KKR, a private-equity firm, is in talks to buy Prisma Capital, a fund of funds. On May 21st Man Group, a listed hedge fund, announced it would buy FRM Holdings, an 8 billion dollar fund of funds, for up to 83m dollar. A small price tag, but some say Man is mad to pay even that.

In return for extra fees, funds of funds are supposed to perform due diligence and select the best managers. But some of the industry's bright lights, including Mr Busson, put money with Bernard Madoff. Too many seem to have no clue how to select managers. Funds of funds have underperformed single-manager hedge funds in eight of the past ten years, according to Hedge Fund Research. Investors are voting with their feet. The sector still oversees 643.6 billion dollar but 184.2 billion dollar has flowed out since 2008.

European funds of funds have been hardest hit. They catered more to rich individuals, the kind scared off by Mr Madoff, than American funds of funds. But they have been losing investors everywhere to direct investment, and to cheaper consultancy firms. In a sign of the times, Albourne Partners, a large consultancy, now advises on 300 billion dollar in hedge-fund allocations, up by 67% from 2008. Funds of funds have had to cut their fees to compete; some are trying to add value by focusing on niche strategies or small, unknown managers

Optimists remain. In 2008 Protégé Partners made a 1m dollar bet with Warren Buffett that funds of funds could beat the stockmarket over a decade. At the end of last year, the fund of funds Protégé selected had fallen by 5.9%, compared with the 6.3% fall sustained by a mutual fund tracking the S&P 500. There are still six years to go before the winner is declared, but such modest outperformance suggests plenty of funds of funds will end up losers in the meantime.