U.S. asset manager Principal Global Investors is to shut London-based hedge fund investment firm Liongate Capital Management after fee-conscious investors withdrew too much money from its funds.

While the hedge fund industry has hit $3 trillion on demand for alternative bets in a low-return world, investors are keen to pay less to make those bets, hitting funds that charge an extra fee for selecting which hedge funds to invest in.

"The headwinds in the hedge fund of funds industry -- fees on fees, declining assets, which I think is an industry phenomenon -- in spite of decent performance, had got us to the point where it was better, on scale grounds, to return cash to investors," said Principal Chief Executive Jim McCaughan.

Liongate, which ran $1.4 billion at the time Principal took a majority stake in 2013, had less than $500 million in assets under management, a spokesman for Principal said, after suffering "significant pressure".

Managing director Jeff Holland left the firm in July, nearly 13 years after helping found the business.

Research from industry tracker Preqin showed 64 percent of the 2,306 fund of hedge funds active globally had less than $500 million in assets. Collectively they managed $895 billion in assets.

The firms -- which offer investors the chance to invest in a range of hedge fund strategies in one product -- could charge as much as 1 percent in management fees and a 10 percent slice of any profits, on top of a typical 2 percent management fee and 20 percent slice of profits charged by the underlying hedge fund managers.

These costly fees structures have come under pressure from investors in recent years.

News of the closure comes in the week that two leading hedge funds -- Renaissance Technologies and Fortress Investment Group -- both shut down funds amid weak performance and declining investor interest.

Principal Global Investors, part of the Principal Financial Group, ran $328.4 billion at the end of June for a range of investors including pension funds and insurance companies.

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