Multi-strategy hedge funds are the new, superior fund-of-funds
One of the consequences of the financial crisis that gets little airplay these days is the slow extinction of fund-of-hedge funds. They’re not dead yet of course (there’s still about $644bn in them), but it’s pretty much the only corner of the investment industry that has flatlined or shrunk over the past decade.
Fund of funds made make an alluring promise to investors. For a fee, they find the finest hedge fund managers on the planet, combine them into a diversified, uncorrelated and high-returning portfolio, monitor their performance and occasionally cull the weakest from the herd.
In reality, in many cases it is simply another fat layer of fees over a compensation scheme masquerading as an asset class, which has ended up producing dismal results. That several big funds-of-funds invested in Bernard Madoff’s Ponzi scheme hammered home how feckless some of them were, and soured a generation of investors against the vehicles.
This story originally appeared on: Financial Times - Author:Robin Wigglesworth
