Some funds of hedge funds are still denying clients access to big chunks of their cash almost two years after the nadir of the credit crisis, said S&P Fund Services, even though many assets have become easier to sell. Lead analyst Randal Goldsmith said a small number of funds that S&P had rated in the past, as well as some funds that had approached the firm for ratings, had large so-called 'side pockets' -- which hold less liquid assets -- amounting to as much as one-fifth of their portfolios.

In some cases, these assets have rebounded in value faster than a hedge fund's other holdings, meaning the side pocket has actually grown as a share of the total fund.

But despite the rebound in the price of the assets, some funds are still reluctant to sell, for instance because they say the spreads are still too wide, said Goldsmith.

"It's the most stubborn area of illiquidity to resolve," Goldsmith told Reuters in an interview.

"We've been disappointed how slow they've been to reduce them as a percentage of the total portfolio... Quite a lot of (funds) have come our way where the group is looking to be (rated), but when we've dug a bit deeper (there were big side pockets)." Hedge funds created side pockets during the credit crisis in order to house assets such as asset-backed loans, distressed debt and complex fixed income instruments, where liquidity dried up and prices fell sharply, making them hard to value or sell when clients wanted their money back.

Investors wanting to get out were usually given their share in cash from the main, liquid portfolio, as well as units in the side pocket. S&P Fund Services said it will not give ratings to funds of hedge funds which have more than 20 percent of their assets in side pockets.

Since the market rebound that began last March, side-pocketed assets have in many cases outperformed the assets in hedge funds' main portfolios -- often because they are recovering from very steep falls during the credit crisis.

This has meant that some side pockets have grown as a percentage of some hedge funds' portfolios.

Goldsmith gave the example of the Antarctica Market Neutral fund, whose rating was taken away by S&P in July 2009 after the proportion of its portfolio in a so-called special purpose vehicle -- similar to a side pocket -- rose above 20 percent, although it has since fallen slightly below that level.

No-one at Antarctica was available for comment.