Nearly two thirds (64 per cent) of managers of mid-sized hedge funds say that institutional clients are "more burdensome" than high net worth/family office clients, according to a study by RSM McGladrey.

Institutional clients often provide questionnaires 30-40 pages in length during the due diligence process and call provided references, the study found. 

There is also a new emphasis on liquidity, with one-third of funds planning to allow liquidity on a more frequent basis and reducing their lock-up periods as a means of attracting investors.

"Institutional clients tend to be more demanding about liquidity," Alan Alzfan, managing director in the financial services group at RSM McGladrey said. "But during the financial crisis, the funds with the loosest terms suffered the most redemptions."

Forty-one percent of funds that experienced terminations over the past two years attributed clients' decisions to liquidity needs.

The survey revealed that mid-sized hedge funds are facing a "reality gap." While nearly 95 per cent surveyed believe they can meet institutional investors' demands, only 22 per cent have more than one full-time employee responsible for client service, and only 9 per cent have highly automated reporting systems.

McGladrey's 2010 Hedge Fund Survey was conducted from June to July by Greenwich Associates, which interviewed 52 US hedge fund executives by telephone. The funds had assets under management between $100 million and $500 million, with an average of $300 million.