The private equity market was hit hard by the financial crisis last year, but it's already on the road to recovery, according to a new report by Preqin (pdf).

From the first quarter to the second, this year, increasing returns and valuations have given investors a reason to hope, even though the industry's average return is down 24.1% for the 12-month period ending June 30, 2009. The negative return still outpaced the S&P 500, MSCI Europe and MSCI Emerging Markets indexes, the alternative investment research firm says, which returned -26.2%, -34.1% and -27.8%, respectively -- and the 12-month average improved from -30% for the year-long period ending March 31, 2009.

Our continent is home to more family offices and foundations than any other part of the world. These institutions are companies (limited partnerships, usually) that exist primarily to benefit a particular family (as the name implies). So, if you have a boatload of family cash, you set up an LP rather than manage your holdings individually. There are advantages involving taxation and liability, among others.

Family offices are quite active in the hedge fund space, according to Preqin, with the average family office in North America allocating 14% of its assets to this class.

The Green Thumb column in last weekend's Wall Street Journal discussed an increasingly popular option for mutual fund investors: fund of funds. As the name would suggest, these are mutual funds that invest in other mutual funds, in theory at least, applying the managers expertise to select great investments and provide the retail investor with diversification through a single fund.

There's just one problem: These funds can get darn expensive. Thankfully, the SEC has moved in this year to require increased disclosure to let investors know just how expensive these funds really are. This is particularly important, as these funds are becoming more and more popular as the default choice for 401(k) plans. According to the Journal:

The move is an important change intended to provide investors with a fuller picture of these products' costs. It's also a rude awakening for many investors -- because the numbers show that they may have been paying a lot more for these funds than they thought.

The reason: Historically, funds-of-funds showed an expense figure that didn't always include the fees of the underlying funds. Now these expenses can be seen in a line in the prospectus typically called "Acquired Fund Fees and Expenses," or AFFE. The new rules took effect for prospectuses filed starting January.

The new disclosure rules are exposing some pretty expensive funds: The UBS Multi-Strat Fund, showed a 12.11% total annual expense last year, compared with about 2% for the prior year. The increase was a result of the new disclosure of AFFE.

It's a good thing investors have this information now because I suspect that very few sane people would invest in a fund with an expense ratio of 12.11% given that that's a few percentage points better than the historic return of the market.

If you are going to invest in these funds of funds, be sure to look for a reasonable expense ratio.