New York-based Blackstone Alternative Asset Management managed $39 billion in hedge fund assets as of December 31, up 15 percent on the year, InvestHedge's Billion Dollar Fund of Hedge Fund Club survey said.

HSBC (HSBA.L) Alternative Investments ranked second, running around $28.5 billion, while UBS (UBSN.VX) Global Asset Management had almost $27 billion invested in hedge funds, growth of 16 percent on the previous year.

Fund of funds have watched their business shrink since the financial crisis - the industry managed $1 trillion in 2007.

Sharp hedge fund losses in the following years forced some to question the model, which charges clients an extra layer of fees - for trying to spot successful managers to invest in - on top of those charged by the underlying managers.

Institutional investors such as pension funds are now driving the growth in hedge fund assets, and more and more are investing directly with big-name managers like Brevan Howard and Winton Capital, rather than through fund of funds.

Fund of hedge funds with more than $1 billion under management held $622 billion in hedge fund assets at the end of last year, according to InvestHedge's survey - that is down on 2010's $625 billion, and represents close to a third of total hedge fund industry assets.

InvestHedge is part of Hedge Fund Intelligence, a news and data provider which tracks the industry.

Other big fund of funds to make the top ten again included Grosvenor Capital Management, Wall Street firms Goldman Sachs Asset Management and Morgan Stanley, and BlackRock Alternative Advisors, the InvestHedge survey said.

"Our latest figures show that there will always be a role for the good funds of hedge funds, despite the challenging market conditions of recent years," InvestHedge's Niki Natarajan said.

"Those with a large established infrastructure will be able to support the requirements of this trend, resulting in further mergers and acquisitions, such as the recent Union Bancaire Privée and Nexar Capital deal."

Mesirow Advanced Strategies also made it into the top ten last year, replacing France's Lyxor Asset Management.

(Reporting by Tommy Wilkes; Editing by Mark Potter)

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