By: Andrew Saunders, CAIA (AllAboutAlpha.com Editorial Board)

The last 12 months have been, to put it mildly, “disruptive” for the hedge fund investor.  No more so than for endowments, foundations and pensions that may have only recently invested in alternative investments.  This month we direct our “seven questions” to someone at the mine face who advises and educates these investors on their alternative allocations.

Greg Dowling is Managing Principal and Director of Hedged Strategies at Fund Evaluation Group, a 70-person investment consulting firm serving institutions such as pensions and foundations.

Q1: Greg, what about the recent 12 months surprised you the most, and how has it changed the advice you have given your clients?

It would be hard to pinpoint just one surprise. The whole sequence of events that occurred post-Lehman was not only surprising, but also all together shocking.  For years, you would hear from analysts covering the financial sector who worried about the investment banks and large money center banks’ exposure to hedge funds. In the end, it was hedge fund’s exposure to the banks that almost brought them down. There is certainly some irony here. One of the most regulated industries, banking, nearly collapsed, yet those “evil” unregulated hedge funds held up fairly well in comparison.

What has changed?  Well, you simply cannot make recommendations solely on a pure investment risk/return basis anymore.  You now need to consider the health and liquidity of both the client and the manager.

Q2: What do you see as the areas requiring the most client education today? More…