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

Portfolio concentration and the fundamental law of active management

In this paper Joop Huij from the Rotterdam School of Management, Erasmus University and Jeroen Derwall from Tilburg University, School of Economics show the observed relation between portfolio concentration and performance is mostly driven by the breadth of the underlying fund strategies, not just by fund managers’ willingness to take big bets. mrec4inarticleinline Sponsored Content

Extreme risks

The events of the last two years have demonstrated that risk management cannot afford to stop at the 95th percentile, and that risk management based solely on volatility is not sufficient. This research paper by Tim Unger, head of investment strategy at Watson Wyatt Australia and member of the global Thinking Ahead Group, considers 15

Recapitalisation and recovery in the REIT market

The REIT market will not consistently outperform the broader equity and fixed income markets has it has done for thepast 20 years, according to this research by Mercer Real Estate Boutique’s David Nix and Michelle Reuter, but there will be pockets of opportunity ripe for stock pickers.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Diversification – based investing – the new balanced

Not withstanding the effect, for investors, of globalisation, country and sector bets still drive the performance of global equity portfolios. And research shows that whole countries tend to stray from fair value for a lot longer than individual stocks do. Deutsche Asset Management has produced a paper on ‘Diversification-Based Investing’, which leads one to think

The new reality of pension investment strategies

A survey of more than 85 senior level financial executives at US-based companies reveals few are taking steps to cut costs and improve governance but are reacting to the economic crisis by decreasing equities and eliminating defined contribution investment options. The report by Watson Wyatt shows that two thirds of companies have made changes, or

MSCI update on emerging markets

MSCI Barra takes a close look at the stock performance in various emerging markets, examining the differences to developed market stocks in the performance of particular sectors and styles.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Previous