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Funds of Funds |
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Funds of funds is a generic word that applies to several asset classes of investment funds.
Funds of funds could mean: 1) Funds of mutual funds. 2) Funds of private equity funds more commonly called private equity funds of funds. 3) Funds of hedge funds. 4) Funds of venture capital funds more commonly called venture capital funds of funds. Funds of funds have evolved to solve several problems in the investment fund business. 1) Funds of funds allow smaller investors access to the underlying investment fund asset class where direct access to the asset class was not possible because of a high initial cost of entry. 2) Allow larger investors who might have had enough capital to enter one or two funds more diversification with the same amount of capital. 3) Possibly increase liquidity for investors by reducing lock-up time than the investor would face if investing directly in the individual investment fund asset class. 4) Allow the funds of funds manager to specialize in identifying talented managers and monitoring performance for the indivual investment fund asset class. Example: a private equity funds of funds manager can specialize in monitoring the private equity fund universe identifying the best private equity managers and monitoring their performance. So there is very real practical advantage in investing in funds of funds across the hedge fund, mutual fund, private equity, and venture capital asset classes. The question then becomes what is the cost of this extra layer of management and is it justified? Typically funds of funds charge 1 to 2% of fees on assets managed and 10% to 15% performance fees with and without hurdle rates. New research is being done presently on whether of not the fee is worth the extra benefits. But for many investors, the funds of funds approach would be the only way to get exposure to the asset class while still maintaing proper portfolio diversification. |
| Funds of Funds | Funds of Hedge Funds | Hedge Funds | Mean Variance Optimization | Offshore Banking | Passive Investing |
| Private Equity Funds | Private Equity Funds of Funds | Venture Capital Funds | Venture Capital Funds of Funds | Wealth Preservation |
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