ESCROW AGREEMENT



     Escrow Agreement (the "Agreement") made as of this 30th day of June, 2002

by and between Morgan Stanley Institutional Fund of Hedge Funds LP, a Delaware

limited partnership (the "Fund"), Morgan Stanley Alternative Investment Partners

LP, the Fund's general partner (the "Sponsor"), Morgan Stanley AIP GP LP, the

Fund's investment adviser (the "Investment Adviser"), and STATE STREET BANK AND

TRUST COMPANY (the "Escrow Agent").



     WHEREAS, the Fund has been formed as a limited partnership under the laws

of the State of Delaware and is registered under the Investment Company Act of

1940 the ("1940 Act") as a closed-end, non-diversified, management investment

company; and



     WHEREAS, the Fund is offering limited partnership interests (the

"Interests") in the Fund in accordance with the terms and provisions of that

certain Private Placement Memorandum dated April 5, 2002 as amended or

supplemented from time to time (the "Memorandum"); and



     WHEREAS, each person desiring to subscribe (a "Subscriber") for one or more

Interests (a "Subscription") will deliver an executed Subscription Agreement

with acknowledgement, as set forth on the signature page thereof, of the Escrow

Account and by wire of immediately available funds, an amount equal to the

Subscriber's initial contribution to the Fund as described in the Memorandum, as

required by the Subscription Agreement (a "Payment"); and



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     WHEREAS, a Subscriber may send in additional funds ("Additional Funds") for

the purchase of Interests in a minimum amount of ONE HUNDRED THOUSAND DOLLARS

($100,000) or such lesser amount as agreed to by the General Partner upon prior

notice to the Fund and to the Escrow Agent by wire with an appropriate

identification of Subscriber and Fund; and



     WHEREAS, the Fund will accept and hold in escrow Payments received from

Subscribers until the Closing Date (as defined in the Memorandum), which may be

postponed as otherwise provided in the Memorandum, or the Fund may be liquidated

at which time or event the funds so held in escrow, together with income accrued

thereon, will either be returned to Subscribers (in the event of a liquidation)

or delivered to the Fund (in the event the Fund holds its Closing Date), as

applicable, on the terms set forth herein; and



     WHEREAS, the Fund will accept and hold in escrow Additional Funds from its

limited partners until the closing related to the Interests being purchased by

such Additional Funds occurs, at which time the Additional Funds so held in

escrow, together with the interest accrued thereon, will be delivered to the

Fund and to the extent not all of the offer to purchase Interests is accepted,

the Additional Funds related to such portion shall be returned to Subscribers as

set forth herein; and



     WHEREAS, the Fund desires to establish an escrow account with the Escrow

Agent into which the Payments and Additional Funds will be deposited, to be

held, administered and disposed of by the



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Escrow Agent in accordance with the terms of this Agreement; and



     WHEREAS, the Escrow Agent is willing to hold, administer and disburse such

Payments and Additional Funds in accordance with the terms hereof;



     NOW THEREFORE, in consideration of the premises and the mutual promises

herein contained, and other good and valuable consideration the receipt and

sufficiency of which is hereby acknowledged, the parties hereto agree as

follows:



     1. Escrow Account. All Payments and Additional Funds delivered to the

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Escrow Agent shall be held in accordance with the terms of this Escrow

Agreement. Payments and Additional Funds shall be made payable to State Street

Bank and Trust Company as Escrow Agent for the Morgan Stanley Institutional Fund

of Hedge Funds LP.



     2. Investment of Funds. The Escrow Agent shall invest all Payments and

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Additional Funds deposited with it and any income earned thereon (the "Escrow

Fund") daily (except as otherwise set forth in a relevant Subscription

Agreement) in Euro time deposits of an affiliate of the Escrow Agent or such

other banks, having minimum deposits of $100 million. The Escrow Agent will

record the interest earned, if any, and shall add that interest as an additional

contribution to the Fund. The Escrow Agent shall issue an IRS Form 1099 or 1042,

if applicable, to each Subscriber with respect to interest earned.



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     3. Distributions.

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        3.1 Rejection of Subscriber: If at any time the Fund shall notify the

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Escrow Agent in writing that any Subscription for Interests received from a

Subscriber has not been accepted in whole or in part, then the Escrow Agent

shall promptly deliver to that Subscriber, at such Subscriber's address as

specified in such Subscriber's Subscription Agreement, his Payment or Additional

Funds (or that portion thereof representing the Payment or Additional Funds for

Interests as to which his Subscription has been rejected) together with all

income earned thereon through the date the Escrow Agent returns such payment.

Notwithstanding the foregoing, in the event a portion of the Additional Funds

has not been accepted, then all income earned on the Additional Funds together

with the portion of the Additional Funds not accepted will be delivered to the

Subscriber.



        3.2 Closing; Termination: Upon the earliest to occur of (x) the Sponsor

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to hold a Closing Date or a closing for additional Interests or (y) the

determination by the Sponsor to liquidate the Fund or (z) the fulfillment of any

other escrow termination conditions defined in the Memorandum, the Fund shall

provide the Escrow Agent with a written notice thereof, which notice shall

specify (i) that (r) the Closing Date has occurred with respect to the Payment

or a closing has occurred with respect to r the Additional Funds or (s) the Fund

is to be liquidated, or (t) an escrow termination condition was satisfied, as

applicable; and (ii) either (a) if such notice specifies all or such portion



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of the escrow should be terminated pursuant to clauses (r) or (t) above, the

Escrow Fund, including any income earned, shall be delivered to the Fund or its

duly authorized custodian for investment pursuant to the Memorandum, the

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