| ctive investment schemes what we call as an | | | | holdings. |
| investment funds uses an investment strategy | | | | The fund of hedge funds invest in portfolio of |
| which includes holding a portfolio of other | | | | different hedge funds as it provides a broad |
| investment funds instead of directly investing in | | | | exposure to hedge fund industry and also |
| securities and shares or bonds. This type of | | | | diversifies the risk associated with the single |
| investment is a good example of multi manager | | | | investment fund. After selecting the manager a |
| investments. Different funds are invested in | | | | portfolio is constructed based on the selections. |
| different investing schemes or funds like, mutual | | | | The fund is solely responsible for hiring and firing |
| funds, hedge funds or even an investment trust. | | | | the managers in the fund. The fund generally |
| When investing in any collective investment | | | | charge a fee for their service in addition to hedge |
| schemes, investment would increase greatly as | | | | fund management and performance fees. While |
| compared to any small investor. And investing in | | | | fund of funds can provide very useful services |
| fund of funds would achieve even a greater | | | | for many hedge fund investors, but still they have |
| diversification. | | | | been criticised for incrementing the cost they |
| Any investment manager would very actively | | | | impose. One of the defining characteristics of |
| manage investments by selecting bad securities. | | | | hedge funds are the performance fees which |
| But a fund of funds manager would only try to | | | | gives a share of positive returns to the managers. |
| select best performing funds to make an | | | | It is calculated as a percentage of the |
| investment. So if the manager is very skillful, it | | | | fund’s profit. Investors are usually willing to |
| could provide even a greater stability and take on | | | | pay managers more performance fees as the |
| some of the risk relating to the decisions of the | | | | investors have themselves made money. So this |
| manager. Fund of funds are often used in | | | | fee acts lucrative for managers who perform |
| investment in hedge funds and private equity | | | | well. |
| funds as they have a very minimum investment | | | | Some managers would even charge investors |
| levels when compared to traditional investment | | | | with a withdrawal or a redemption fee if the |
| funds. The lack of accessibility favors a fund of | | | | investors withdraw the money from the fund |
| funds with a professional manager and build in | | | | before a certain period of time has elapsed since |
| spread of risk. Pension funds also invest in find of | | | | the money was invested for the purpose to |
| hedge funds other than traditional stock and bond | | | | encourage long term investments in the funds. |