The heat is on this summer, but the temperature of the registered hedge fund of funds marketplace is anything but sizzling. In fact, it is getting a downright chilly reception.

Registered hedge fund of funds' managers are facing significantly lower returns than they saw in 2003 and 2004, along with an asset base that, in many cases, has either eroded or been slow to build. In addition, managers are facing other complications that include a frenetic, trendless stock market and one specialized investment strategy that hopeful managers had allocated assets to. That strategy, known as convertible arbitrage, has endured its worst year since 1999.

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