Lehman's Hedge Fund Management Fund

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Yesterday the news broke that Lehman Brothers and Aladdin Capital, a credit fund, are each raising $3 billion for funds that will back small hedge-fund managers. Investment in hedge funds severely contracted in the first three months of this year, and so many hedge funds are feeling squeezed. Lehman and Aladdin hope to take advantage of the need for liquidity at smaller hedge funds by investing now while investment cash is otherwise tight, and they hope that investors in their new funds-of-hedge fund managers will share that ambition.
Felix Salmon doesn't think this makes sense. In part, it seems that Salmon doesn't grasp the idea that because it is rational to invest in a diversified portfolio of hedge funds, it is rational to invest in a a diversified portfolio hedge fund managers. In fact, one can be looked at as a hedge against the other. Hedge fund investors only participate in the upside but hedge fund managers typically get a take of the overall assets under management regardless of trading profits. Therefore, the Lehman and Aladdin funds should operate as a hedge against hedge fund investment losses.
But Felix also doesn't see why hedge fund managers should be interested in selling, which might indicate he doesn't understand just how tight money has become for smaller hedge funds.

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