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Citi Quilter is looking at launching one of the first onshore funds of absolute return funds as the Treasury continues to mull over the introduction of Faifs.

The move indicates some companies are already contemplating a push into the market before the government goes ahead with its approval of the new fund-of-alternative-investment-funds format.

Among the companies to have launched an onshore absolute return fund of funds are City Financial, whose £4.2m Diversified Absolute Return fund sits in the Global Growth sector, and Skandia Investment Group, whose £28.4m Skandia Alternative Investments fund has entered the IMA's newly created Absolute Return peer group.

At launch, the Skandia fund aimed to deliver an absolute return by investing equally in 10 funds, each from a separate uncorrelated asset class. At launch, these were a fund of hedge funds, passive timber, precious metals, water, infrastructure, commodities, currency, global macro-economic allocation, equity market neutral and volatility portfolios.

As of 31 July, the City Financial fund had 34 per cent in absolute return strategies, with an additional 44 per cent in equities, 14 per cent in tangible assets, 7 per cent in property and 1 per cent in cash.

Absolute return holdings included City Litchfield ABS, Thames River Multi-Hedge, Cazenove Absolute Equity, Symphony FTSE Absolute Return, Symphony Structured Products, New Star RBC Hedge 250 and FRM Credit Alpha funds.

Citi Quilter already has six managed portfolio service strategies for medium-risk onshore investors. The minimum investment is £25,000.

Adventurous is benchmarked 50 per cent to the FTSE All-Share and 50 per cent to the FTSE World ex UK, while Growth, Balanced and Income are benchmarked to the FTSE Apcims Stock Market Growth, Balanced and Income Portfolio indices.

Distribution is 75 per cent benchmarked to the FTSE-A Government All-Stocks index and 25 per cent to the FTSE All-Share, and Cautious solely to the FTSE-A product.

The £1.4bn BlackRock UK Absolute Alpha fund already constituted more than 9 per cent of each of the strategies as of the end of August.

Roddy Kohn, managing director at Bristol-based IFA Kohn Cougar, said this was a bold time to be launching a product given the current mood in the market.

"My gut reaction is, there will be so many disillusioned investors over these weeks and months, that you have to admire their gall in looking at this."

His key concern was the cost of investing in a fund of absolute return funds when he considered fees on absolute return funds to be high to start with.

"Total expense ratios on absolute return funds are already extortionate," he said.

He said the costs could put many IFAs off recommending this type of product, nor did he foresee any intervention from the regulator on fees.