Advantage of Fund of Funds
The fund of funds has some advantages over the only hedge fund investment. They are mainly
- It enables small investors with low capital investment to invest in the portfolio of hedge funds.
- As it invests in large number of uncorrelated hedge funds, failure of one hedge fund does not affect the overall return significantly.
- Investors can invest in different hedge funds through investment in fund of funds to diversify the risk.
- Fund of Funds managers require more transparency from the hedge funds managers which increases the investor confidence.
- It delivers more stable return due to investment in different hedge fund with different strategies.
- It is easier to manage the fund of funds as it does not invest in the financial instrument and derivatives directly. That’s why the management fee is much less than the hedge funds.
Because of these advantages over the hedge funds, Fund of funds are getting more popular nowadays and getting lots of money as investments.