Hedge funds have helped fuel the demand for bridge loans, thanks to differing lock-up periods among the funds and their fund of hedge fund investors. While an increasing number of hedge funds have lock-up periods of two years or more, FoHFs allow investors to withdraw monthly or quarterly. According to a recent survey by PFPC, three out of four funds of hedge funds have such time frames for redemptions. What to do? The answer lies in bridge loans, which give the FoHFs enough credit to pay for investor’s redemptions until the underlying hedgies pay up. Bridge loans, according to Dennis Westley, senior v.p,. for alternative services at PFPC, cited by Lipper HedgeWorld, also help hedge funds better deal with a potential asset drain in the event that investors come clamoring for their cash, and help hedge funds avoid liquidating positions at an inopportune time to meet their obligations, and may even help keep a fund in business. This is good news for the folks who offer such loans, such as banks, custodians and prime brokers. But the HF-propelled demand can also come with risk that they can be pulled down along with their borrowers. "The challenge for hedge funds, lenders and providers is to ensure that risk in these arrangements is identified and balanced," according to PFPC.