UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HODLINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number: 811-10593

Morgan Stanley Institutional Fund of Hedge Funds LP

(Exact Name of Registrant as specified in Charter)

One Tower Bridge

100 Front Street, Suite 1100

West Conshohocken, Pennsylvania 19428-2881

(Address of principal executive offices)

Amy R. Doberman, Esq.

Morgan Stanley Investment Management Inc.

522 Fifth Avenue

New York, NY 10036

(Name and address of agent for service)

Registrant’s Telephone Number, including Area Code: (610) 260-7600

Date of fiscal year end: December 31

Date of reporting period: September 30, 2008

Item 1. Schedule of Investments.

The Registrant’s schedule of investments as of the close of the reporting period prepared pursuant to Rule 12-12 of Regulation S-X is as follows:

MORGAN STANLEY ALTERNATIVE INVESTMENT PARTNERS LP

Morgan Stanley Institutional Fund of Hedge Funds LP

Schedule of Investments (Unaudited)

September 30, 2008

Description	First Acquisition Date	Cost		Fair Value		Percent of Partners’ Capital
Investment Funds
Convertible Arbitrage
KBC Convertible Opportunities Fund L.P.	7/1/2002	$	226,703	$	222,857	0.01	%
Lydian Partners II L.P.	7/1/2002		10,000,000		5,692,410	0.21
Total Convertible Arbitrage			10,226,703		5,915,267	0.22
Distressed
Avenue Asia Investments, L.P.	7/1/2002		12,192,933		18,028,627	0.66
Avenue Asia Investments Delaware Statutory Trust	11/1/2007		58,167		45,305	0.00
Avenue Europe Investments, L.P.	8/1/2004		38,000,000		40,587,582	1.49
Cerberus International, Ltd. †	12/1/2007		130,000,000		127,486,671	4.68
Total Distressed			180,251,100		186,148,185	6.83
Equity Long/Short - High Hedge
Atlas Advantage Fund, L.P.	7/1/2006		12,069,916		10,168,711	0.37
Highbridge Long/Short Equity Fund, L.P.	1/1/2005		42,515,888		57,244,044	2.10
Prism Partners III Leveraged L.P.	6/1/2008		80,000,000		74,650,968	2.74
32 Capital Fund LLC (The)	7/1/2007		29,732,819		26,673,369	0.98
Total Equity Long/Short - High Hedge			164,318,623		168,737,092	6.19
Equity Long/Short - Opportunistic
Blackstone Kailix Fund L.P.	10/1/2006		68,000,000		58,747,232	2.15
Karsch Capital II, LP	5/1/2004		48,849,943		62,233,102	2.28
Lansdowne Global Financials Fund, L.P.	10/1/2004		47,647,820		80,177,054	2.95
Visium Balanced Fund, LP	12/1/2005		67,000,000		85,092,817	3.12
Total Equity Long/Short - Opportunistic			231,497,763		286,250,205	10.50

1

MORGAN STANLEY ALTERNATIVE INVESTMENT PARTNERS LP

Morgan Stanley Institutional Fund of Hedge Funds LP

Schedule of Investments (Unaudited) (continued)

September 30, 2008

Description	First Acquisition Date	Cost		Fair Value		Percent of Partners’ Capital
Investment Funds (continued)
Event Driven Credit
Fir Tree Recovery Fund, L.P.	7/1/2002	$	721,281	$	721,281	0.03	%
Plainfield Special Situations Onshore Feeder Fund LP	8/1/2005		120,000,000		128,388,126	4.70
Q Funding III, L.P.	7/1/2002		37,150,523		36,483,472	1.34
Silver Point Capital Fund, L.P.	6/1/2007		81,000,000		71,331,431	2.62
Total Event Driven Credit			238,871,804		236,924,310	8.69
Macro
Brevan Howard L.P.	8/1/2004		113,500,000		155,163,326	5.68
D.E. Shaw Oculus Fund, L.L.C.	11/1/2004		102,735,359		139,847,142	5.13
GSA Composite Alpha Partners L.P.	9/1/2008		27,000,000		23,108,625	0.85
Total Macro			243,235,359		318,119,093	11.66
Mortgage Arbitrage
Ellington Mortgage Partners, L.P.	7/1/2002		42,575,435		40,419,636	1.48
New Ellington Credit Partners, LP	2/1/2006		36,097,174		25,554,581	0.94
Total Mortgage Arbitrage			78,672,609		65,974,217	2.42
Multi-Strategy
Amaranth Partners L.L.C.	11/1/2004		8,629,059		2,988,004	0.11
Citadel Derivatives Group Investors LLC	7/1/2007		20,250,000		56,293,466	2.06
Citadel Wellington LLC	7/1/2002		86,848,035		125,064,377	4.59
D.E. Shaw Composite Fund, L.L.C.	9/1/2005		68,999,007		88,832,461	3.26
HBK Fund L.P.	7/1/2002		69,771,813		86,598,434	3.18
Magnetar Capital Fund, LP	1/1/2008		60,000,000		51,738,818	1.90
Millennium USA, L.P.	8/1/2008		120,000,000		113,182,796	4.15
OZ Domestic Partners, L.P.	7/1/2002		115,500,000		150,125,035	5.50
Perry Partners, L.P.	12/1/2006		37,500,000		38,805,929	1.42
Polygon Global Opportunities Fund LP	7/1/2005		88,718,941		85,763,031	3.14
QVT Associates LP	9/1/2006		119,000,000		139,265,144	5.11
Sandelman Partners Multi-Strategy Fund, LP	5/1/2007		64,113,198		48,361,927	1.77
TPG-Axon Partners, LP	10/1/2007		146,000,000		115,016,594	4.22
Total Multi-Strategy			1,005,330,053		1,102,036,016	40.41

2

MORGAN STANLEY ALTERNATIVE INVESTMENT PARTNERS LP

Morgan Stanley Institutional Fund of Hedge Funds LP

Schedule of Investments (Unaudited) (continued)

September 30, 2008

Description	First Acquisition Date	Cost		Fair Value		Percent of Partners’ Capital
Investment Funds (continued)
Relative Value Credit
Artesian GMSCAF (Onshore) Series LP - OP2	2/1/2006	$	14,648,291	$	8,687,453	0.32	%
Total Relative Value Credit			14,648,291		8,687,453	0.32
Restructurings and Value
Amber Fund LP	4/1/2007		8,197,615		6,652,366	0.24
Castlerigg Partners LP	5/1/2007		74,000,000		63,470,325	2.33
Empyrean Capital Fund, LP	7/1/2004		407,519		259,331	0.01
Oceanwood Global Opportunities Fund L.P.	7/1/2007		50,000,000		42,336,306	1.55
One East Partners, LP	8/1/2006		14,736,443		13,478,460	0.49
Western Investment Activism Partners LLC	1/1/2006		45,973,140		43,584,770	1.60
Total Restructurings and Value			193,314,717		169,781,558	6.22
Statistical Arbitrage
GSA Capital International Partners, L.P.	9/1/2008		8,250,000		7,491,000	0.27
Total Statistical Arbitrage			8,250,000		7,491,000	0.27
Total Investments in Investment Funds		$	2,368,617,022	$	2,556,064,396	93.73	%

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MORGAN STANLEY ALTERNATIVE INVESTMENT PARTNERS LP

Morgan Stanley Institutional Fund of Hedge Funds LP

Schedule of Investments (Unaudited) (continued)

September 30, 2008

Description	Cost		Fair Value		Percent of Partners’ Capital
Short-Term Investments
State Street Eurodollar Time Deposit 1.00% due 10/01/08	$	15,978,885	$	15,978,885	0.59	%
SSgA U.S. Treasury Money Market Fund 0.02%		63,071,046		63,071,046	2.31
Total Short-Term Investments		79,049,931		79,049,931	2.90
Total Investments in Investment Funds and Short-Term Investments	$	2,447,666,953		2,635,114,327	96.63
Other Assets, less Liabilities				92,057,322	3.37
Total Partners’ Capital			$	2,727,171,649	100.00	%

Detailed information about all of the Investment Funds’ portfolios is not available.

† Investment Fund is held indirectly through a swap agreement. As of September 30, 2008, the Partnership concluded that the swap agreement did not meet the criteria for treatment as a derivative under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities.” As a result, the counterparty’s investment in Cerberus International, Ltd. and the related swap collateral are reflected as a direct holding within investments in Investment Funds.

4

MORGAN STANLEY ALTERNATIVE INVESTMENT PARTNERS LP

Morgan Stanley Institutional Fund of Hedge Funds LP

Schedule of Investments (Unaudited) (continued)

September 30, 2008

Strategy Allocation	Percent of Partners’ Capital
Multi-Strategy	40.41	%
Macro	11.66
Equity Long/Short - Opportunistic	10.50
Event Driven Credit	8.69
Distressed	6.83
Restructurings and Value	6.22
Equity Long/Short - High Hedge	6.19
Short-Term Investments	2.90
Mortgage Arbitrage	2.42
Relative Value Credit	0.32
Statistical Arbitrage	0.27
Convertible Arbitrage	0.22
Total Investments in Investment Funds and Short-Term Investments	96.63	%

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Notes to Schedule of Investments

Fair Value of Financial Instruments

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”). Effective January 1, 2008, Morgan Stanley Institutional Fund of Hedge Funds LP (the “Partnership”) adopted FAS 157. In accordance with FAS 157, fair value is defined as the price that the Partnership would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. FAS 157 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Partnership’s investments. The inputs are summarized in the three broad levels listed below:

• Level 1 – quoted prices in active markets for identical investments

• Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Partnership’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The units of account that are valued by the Partnership are its interests in the Investment Funds or other financial instruments and not the underlying holdings of such Investment Funds or other financial instruments. Thus, the inputs used by the Partnership to value its investments in each of the Investment Funds or other financial instruments may differ from the inputs used to value the underlying holdings of such Investment Funds or other financial instruments.

The following is a summary of the inputs used as of September 30, 2008 in valuing the Partnership’s investments carried at fair value:

Valuation Inputs	Investments in Investment Funds		Other Financial Instruments*
Level 1 - Quoted Prices	$	-	$	-
Level 2 - Other Significant Observable Inputs		-		79,049,931
Level 3 - Significant Unobservable Inputs		2,556,064,396		-
Total	$	2,556,064,396	$	79,049,931

* Other financial instruments include short-term investments.

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Fair Value of Financial Instruments (continued)

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

	Investments in Investment Funds
Balance as of December 31, 2007	$	3,156,815,308
Net realized gain (loss)		113,966,376
Net change in unrealized appreciation/depreciation		(431,866,617	)
Net purchases (sales)		(282,850,671	)
Net transfers in or out of Level 3		-
Balance as of September 30, 2008	$	2,556,064,396
Net change in unrealized appreciation/depreciation from investments still held as of September 30, 2008	$	(370,701,349	)

Portfolio Valuation

The Partnership’s Board of Directors (the “Board”) has approved procedures pursuant to which the Partnership values its investments in Investment Funds at fair value, which ordinarily will be the amount equal to the Partnership’s pro rata interest in the net assets of each such Investment Fund, as such value is supplied by, or on behalf of, the Investment Fund’s investment manager from time to time, usually monthly. Valuations received by, or on behalf of, Investment Funds’ respective investment managers are typically estimates only, subject to subsequent revision by such investment managers. Such valuations are generally net of management and performance incentive fees or allocations payable to the Investment Funds’ managers or general partners, pursuant to the Investment Funds’ operating agreements. The Investment Funds value their underlying investments in accordance with policies established by each Investment Fund, as described in each of their financial statements and offering memoranda. The Partnership’s investments in Investment Funds are subject to the terms and conditions of the respective operating agreements and offering memoranda, as appropriate.

The Partnership’s investment adviser (the “Adviser”) has designed ongoing due diligence processes with respect to Investment Funds and their investment managers, which processes assist the Adviser in assessing the quality of information provided by, or on behalf of, each Investment Fund and in determining whether such information continues to be reliable or whether further investigation is necessary. Such investigation, as applicable, may or may not require the Adviser to forego its normal reliance on the valuation supplied by, or on behalf of, such Investment Fund and to determine independently the value of the Partnership’s interest in such Investment Fund, consistent with the Partnership’s fair valuation procedures.

Where no fair value is readily available from an Investment Fund or where a value supplied by an Investment Fund is deemed by the Adviser not to be indicative of its value, the Adviser will determine, in good faith, the fair value of the Investment Fund under procedures adopted by the Board and subject to Board supervision. The Adviser values the Partnership’s assets based on such reasonably available relevant information as it considers material. Because of the inherent uncertainty of valuation, the values of the Partnership investments may differ significantly from the values that would have been used had a ready market for the investments held by the Partnership been available.

Short-term investments are valued at amortized cost, which approximates fair value.

7

Item 2. Controls and Procedures

(a) The Registrant’s principal executive officer and principal financial officer have concluded that the Registrant’s disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Registrant in the form N-Q was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, based upon such officers’ evaluation of these controls and procedures as of a date within 90 days of the filing date of the report.

(b) There were no changes or corrective actions during the Registrant’s first fiscal quarter with regard to significant deficiencies or material weaknesses in the Registrant’s internal controls over financial reporting or in other factors that could materially affect the Registrant’s internal controls over financial reporting.

Item 3. Exhibits

(a) Certifications of Principal Executive Officer and Principal Financial Officer attached to the report as part of EX-99. CERT

SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused his report to be signed on its behalf by the undersigned, thereunto duly authorized.

(Registrant)    Morgan Stanley Institutional Fund of Hedge Funds LP

By:	/s/ Ronald E. Robison
Name:	Ronald E. Robison
Title:	Principal Executive Officer
Date:	November 21, 2008

Pursuant to the requirement of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	/s/ Ronald E. Robison
Name:	Ronald E. Robison
Title:	Principal Executive Officer
Date:	November 21, 2008
By:	/s/ James Garrett
Name:	James Garrett
Title:	Principal Financial Officer
Date:	November 21, 2008