The fund of hedge funds concept took a serious knock last year with Bernard Madoff's $65 billion fraud, leading high net worth investors to pull out money over concerns that the due diligence hadn't been quite as diligent as one would hope.

Even managers who weren't exposed to Madoff had to calm client fears. This has prompted the bigger, more institutional groups to seek ways of gaining more control over assets that the underlying managers are running.

scrutiniseGoldman Sachs Asset Management (GSAM) is currently building out its separate account platform with the aims of improving hedge fund transparency and ensuring that hedge fund managers' interests are properly aligned with those of their clients. "It gives you much greater leeway to shape the investment guidelines and terms," says Charles Baillie, co-head of alternative investments and manager selection at GSAM, who oversees some $19 billion in hedge fund assets.

Separate or managed accounts are usually separate vehicles specifically set up for a larger investor. They give the investor more scope in setting the liquidity parameters, and control over the underlying assets. Baillie says more fund of hedge fund managers had started looking at this model but that the higher costs and back office requirements have discouraged many from pursuing it.

"Under this structure you can see your assets and choose your own custodian," Baillie says. GSAM is also trying to ensure that its managers have a lot of their own money invested in their funds, and where the investment horizon is longer, is looking to extend the period over which carried interest is paid.