The obvious objection to pension funds bringing hedge fund selection in-house is the strain it puts on resources in the service of such a small part of the overall risk budget. The counter-argument, put by Andre Konstantinow, head of manager selection at the Barclays UK Retirement Fund, is that hedge funds involve disproportionately active and consequential decision-making: "If you want to expand your investment team, you get the most value where it can make the most difference: alongside asset allocation, that means sourcing alpha."

Moreover, Konstantinow notes that the advisers in the market can have a gearing effect on in-house expertise. His background includes selecting managers for Morgan Stanley, and he has hired two others with similar track records. "As we bring the skills in-house, we can engage eye-to-eye with our managers and advisers, tell them exactly what we need and get the best out of it," he reasons. In this way, a small but experienced team can cover a lot of ground and achieve high-impact results.

Partly as a result of investors bringing hedge fund selection in-house, the variety of sources for that advice is also evolving. "Funds of funds are trying to re-invent themselves in a number of ways," says Lawrie Chandler, associate partner at hedge fund advisory firm eHedge. "One way is to set up bespoke advisory services by leveraging the skills they have on a time-and-materials basis."

Hermes BPK Partners CEO Matteo Perrucio agrees that the quasi-advisory relationship is "the single most aggressive trend that we're seeing". Often it sits alongside a core-satellite portfolio, with the fund of funds managers being used for the core multi-strategy exposure, and offering some due diligence and monitoring input on the clients' in-house allocations to satellite funds. "But just because you see the trend going towards advisory mandates, doesn't make it an automatic leap for a fund of funds to become an adviser. It's about how you're structured, the culture around reporting and risk management. It may be that an investor can say: ‘I can really work together with your head of research', but another fund of funds might have a more rigid and exclusive process - and I'd suggest that the bigger firms might have that problem if they try to become advisers."

There are clear conflicts of interest to negotiate (particularly around sharing of proprietary information and allocating capacity) alongside the obvious opportunities for knowledge transfer. Specialist hedge fund consultants draw attention to these issues, of course, and they also wonder how restricted the advice from funds of funds will be, given the fact that they are working from their own approved lists of managers. Come to us interested in a manager we don't already cover, they say, and it's our job to start researching him.

The challenge is to make that business model pay. Some, like Clontarf Capital with its plans for an Asia long/short fund of funds, aim to do so by using their knowledge to encroach on the fund of funds' territory. "You cannot fund the research that we do if you are not being properly compensated for it," says founder Aoifinn Devitt. "Although our product will have quite an aggressive performance fee hurdle."

Others stick to charging a premium price for what they claim is a premium service. "We are perhaps a little pricier than traditional consultants, but we prefer to have much deeper relationships with fewer clients," says Valérie Bénard, head of Aksia Europe. The firm's CEO, Jim Vos, argues that the hedge fund and CIO experience his colleagues can boast informs against "rubber-stamp" decisions: "That's arguably the risk that many traditional consultants run, particularly when dealing with hedge fund recommendation."

Is that fair? The big houses are increasingly tooled up to challenge the specialists. Asked whether Hewitt would engage a specialist to help in areas like operational due diligence, senior hedge fund researcher Guy Saintfiet says: "We reviewed all the providers out there, but it's such an important area that we felt it was important to build our own team."While it makes business sense for an actuarial consultant to expand its hedge fund team in this way, the same cannot be said of a hedge fund specialist spending its resources on asset-liability matching expertise.

All three sources of advice have something worthwhile to offer, and the cost-benefit balance of using all three will vary from one investor to the next.