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

Sponsored Content

One response to “In defence of hedge funds of funds”

Leave a Comment

GIC, Temasek eye trillions of growth in climate adaptation market

GIC, Temasek eye trillions of growth in climate adaptation market

Singapore’s two largest asset owners, GIC and Temasek, see attractive opportunities in climate adaptation solutions – a relatively underfunded area compared to decarbonisation. The former has already made selective adaptation investments and said the opportunity set across public and private debt and equity could increase to $9 trillion by 2050.

Sort content by

Deconstructing Herding

This World Bank policy research paper examines the herding behaviour of pension funds, concluding that funds herd more in assets for which they have less market information and when risk increases. Moreover, herding is more prevalent across funds that narrowly compete with each other.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Are state public pensions sustainable?

Assuming future state contributions fund the full present value of new benefits, many US state systems will run out of money in 10-20 years. This paper argues the expected shortfalls raise the possibility that the federal government will be faced with a decision whether to bail out states driven to insolvency by their pension programs.mrec4inarticleinline

Dynamic hedging in incomplete markets: a simple solution

Despite much work on hedging in incomplete markets, the literature still lacks tractable dynamic hedges in plausible environments, in this article, Professor Suleyman Basak and Dr Georgy Chabakauri provide a simple solution to this problem.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Eigenfactor adjusted covariance matrices

This paper investigates the underlying sources for the biases of optimised portfolios, and identifies special portfolios, termed eigenfactors, that exhibit large systematic biases in the risk forecasts. It shows that the covariance matrix can be adjusted to remove these biases, and that removing eigenfactor biases essentially removes the optimised portfolio biases as well. mrec4inarticleinline Sponsored

The new era of infrastructure investing

This collaborative research looks at the constraints preventing institutional investors from taking their theoretical place of prominence in the market for private infrastructure. It offers insight into how institutional investors can establish internal programs, and details about the challenges of direct investment programs. But, it also concludes that funds managers will still have a crucial

Strategic asset allocation for long-term investors

This Netspar research by Hoevenaars, Molenaar, Schotman and Steenkamp studies the effect of parameter uncertainty on the long-run risk of three alternative asset classes: equity, nominal bonds and short-term T-bills.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Previous