Hedge funds attracted plenty of attention in 2008 for reasons such as the widespread lack of performance and the alleged Madoff fraud.

This month’s Off The Record survey finds opinions divided on hedge funds, with equally strong views voiced by both those who invest in hedge funds and those who do not.

Diversification was what lured the majority of investors to hedge funds initially. However, 16 out of 39 respondents (41%) said that they did not invest in hedge funds because they were not convinced by the diversification argument. One of the main deterrents to hedge funds also appears to be their fee structure - 15 out of 39 respondents (38.5%) believed the fees were too high, and 13 said that fund-of fund-fees were too high. Due diligence was too onerous for nine of the respondents, while seven of the 30 respondents were put off by low achieved net returns. On top of that, many respondents added that a lack of transparency surrounding hedge funds was an issue for them.

Of the hedge fund investors, the overwhelming majority took up the asset class between 2002 and 2008. Only three of the 30 respondents took the plunge into the asset class as far back as 1997 and 1998.

The amount of total assets invested into hedge funds varied enormously between pension funds - from as little as 0.5% to as much as 25%.

But agreement prevailed on the route to a hedge funds investment. The majority of respondents - 26 out of 30 - said they invested via funds of funds. Some 12 respondents claimed to invest directly.

Some hardcore attitudes look unlikely to change. “Hedge funds are a big bluff,” remarked a Finnish fund, while an Irish fund said it simply did not trust them. A Dutch  fund said: “After 2008, it has become clear that the whole business model of hedge funds has failed.”

Despite the negative headlines hedge funds received in 2008, over 76% of those who do invest still have confidence. “Although our confidence is somewhat damaged due to the Madoff scandal, it was good to hear that our fund manager had the due diligence not to invest with Madoff,” one UK fund said. Another UK fund added that it still had confidence in hedge funds because it required “due diligence and a certain level of transparency”.

Those supporting the asset class were equally vocal. “It is wrong to tarnish all hedge funds with the alleged criminal activity at Madoff. Irrespective of the poor performance in 2008 they did act as a diversifier as many funds moved their assets from equities to hedge funds and the assets then performed better than if they had stayed in equity,” another UK fund said.

A Dutch fund remarked: “Not every hedge fund is the same. We invest in reliable hedge funds, and the crisis has shown that not only hedge funds can be unreliable and scandalous, but also banks and other financial institutions.”

The schemes that objected to tarring all hedge funds with the same brush said that the market still boasted good hedge fund managers and opportunities, in particular if managers were able to adapt their strategy to the new environment. “There is a wide variety of hedge funds available,” said a UK fund, adding: “A good fund of funds manager should be able to pick the best and ignore the worst managers.”

Some pension funds are waiting to ascertain the fallout from the current crisis in order to reassess their own investment opportunities in relation to hedge funds.

After all, some good may come out of the annus horribilis for hedge funds. “The worst hedge funds will disappear and as capacity will be almost everywhere, fees might become lower,” said a Swiss scheme.

“Those left standing after the dust clears will come out stronger,” added a fund based in the US.