At least 1,500 funds of hedge funds are too small to survive because competition is squeezing fees, according to HFR Europe.

Speaking at the Hedge 2004 conference in London this week, John Godden, Managing Director of HFR Europe, warned that funds of hedge funds with less than USD 1 billion of assets will struggle to earn enough money.

Godden noted that fee levels are being placed under pressure as funds of hedge funds battle to attract pension funds allocations.

He said: "There are 1,500 firms with less than USD 1 billion right now. Unless they move fast, they will have problems."

Evidence is already emerging of consolidation in the US market as larger FoHFs merge with smaller rivals, and several medium-sized UK FoHFs are known to be looking for smaller players to acquire in the rush to build asset volumes.