In spite of negative returns in April and bad hedge fund news in the world press in May, Mr. McKee said his phone isn't ringing off the hook. "The fact that I am not getting a lot of calls from clients tells me that they are behaving as long-term investors."
"Institutional clients are not really going to react to monthly or quarterly returns."
Mr. McKee said most of the concern in the institutional marketplace now is over hedge funds of funds that use a lot of leverage or rely heavily on structured products. But most of these are European and not used much by institutional investors. He added that most redemptions seem to be by taxable, high-net-worth investors leaving troubled hedge funds and funds of funds that are invested in them.
Officials at hedge fund-of-funds companies are sitting tight, waiting out a market that continues to be plagued by fairly low volatility, widening credit spreads and isolated market dislocations, most recently in the credit derivatives and convertible arbitrage areas.
Mazen Jabban, chief executive officer of Focus Investment Group Ltd., New York, said portfolio managers there aren't doing "anything that we do not normally do (in) a given month." Focus manages about $1 billion in hedge funds of funds.
"The best thing you can do now is to stay on the sidelines and review your managers, making sure they are doing what they are supposed to do," Mr. Jabban said.
Barry Colvin, president of Rye, N.Y., hedge fund-of-funds manager Tremont Capital Management Inc., agreed. "The message is: Don't go crazy on top-down change right now. Don't tinker. It's not one of those times when we are overweighting one strategy or another because there is little value to be found anywhere. You've got to choose your managers well and let them to do their jobs." Tremont has about $10 billion in hedge funds of funds.