In defence of hedge funds of funds

Funds of funds, particularly hedge funds of funds, have suffered outflows in recent years as pension funds reassessed their cost alongside risk and return characteristics. The conventional wisdom is that all types of FoFs are at death’s door.

But according to a research report by Steven Hall and Jack Gray (pictured) of Australian alternatives firm Brookvine, “conventional wisdom is always conventional, occasionally wise and oftentimes wrong”.

Their report says that investors should compare the cost of FoFs, including the base and carry, and agency costs, with both the direct costs of building a portfolio yourself and the indirect opportunity costs of the consequences of inadequate skill, temperament, experience and networks.

“Only a modest number of hedge FoFs and US endowments have the ‘right stuff’ needed to successfully craft and implement a portfolio of hedge fund strategies,” the report says.

Click here to read the full report