Hedge funds clients are still paying lavish fees on $100 billion of money they are unlikely to be able to touch for some time, in a sign of the lingering damage done to the opaque industry during the credit crisis.

Despite almost a year of rising markets and better liquidity since the nadir of the credit crisis in autumn 2008, managers have plenty of assets — worth at least $100 billion, according to Hedgebay, a marketplace for hedge fund holdings — locked up as they still can’t be sold.

This rump includes funds that were using Lehman Brothers as their prime broker when it collapsed and who saw assets held there frozen, as well as funds that bought very illiquid assets such as private equity, private convertible bonds and pre-initial public offering (IPO) securities during the boom.

“The majority of funds are still charging fees on side pockets. Some have made a gesture to reduce fees,” said Neil Campbell, head of alternative investments at broker Tullett Prebon.

Creating side pockets, or portfolios that could be wound down separately, was one of the tactics used by hedge funds during the credit crisis, when they could not sell assets to meet redemptions.

And in a few cases managers are stopping clients selling on these holdings in secondary markets to more patient investors.

“The balance of power when you invest in a Cayman fund is with the manager,” said Alexandre Col, head of Edmond de Rothschild private bank’s investment fund department. “If there’s one lesson to learn from 2008, it’s that the manager can do whatever they want for quite a long time, without taking into account the opinion of shareholders.”

During the crisis many funds were left red-faced after buyers for assets including convertible bonds or emerging market bonds disappeared, while investors started demanding their money back, eventually pulling out a net $330 billion in the year to June 2009, according to Hedge Fund Research. Many funds took action by creating the side pockets or limiting redemptions.

Special Situations struck a deal with investors for a three-year lock up in return for lower fees after holding more than two-thirds of assets in unlisted securities.

Investors’ clamour to get their cash back has died down in some areas, helped by returns of 18.6 per cent last year, according to Credit Suisse/Tremont.

However, for funds that still haven't been able to take advantage of a return of risk appetite in markets to sell very illiquid assets, it looks like a long, hard road to return cash to clients who still want out.