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Hedge Fund of Funds Investing

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Hedge Fund of Funds Investing

An Investor's Guide

Bloomberg Press,

15 min read
10 take-aways
Audio & text

What's inside?

Funds of funds pool hedge fund investments and make them grow with diversified risk, lower transparency and higher fees.

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Editorial Rating

8

Qualities

  • Innovative
  • Applicable

Recommendation

Joseph G. Nicholas’ book is not for the faint of heart or the light of wallet. If your idea of a strong investment is a 401K plan and a few blue chip stocks handed down from your dear departed grandmother, this probably isn’t the book for you. However, for those interested in how the very rich get very richer, as well as those charged with the weighty responsibility of protecting institutional and private assets, this book could be worth its weight in gold or stock certificates. Nicholas writes at a level that makes his information just comprehensible to those with minimal investment knowledge, while still very useful to insiders who know the menu of every deli within a two-mile radius of Wall Street. His in-depth historical analysis explains the current strong interest in hedge funds of funds investing, and his case studies will teach you the all-important matter of how to select the right fund of fund manager. getAbstract.com strongly recommends this book to anyone who wants or needs to learn more about investing at the most elite levels.

Summary

Investing WiselyImagine that you run a $200 million foundation and you’ve decided to invest about 10% of your assets, or $20 million, in hedge funds. One prudent approach is to invest in a "fund of hedge funds," which is somewhat like a mutual fund in that both represent a pooling of funds engaged in a range of investment strategies. Funds of funds (FOFs) are pools of money that are invested in other investment funds — especially hedge funds. Rather than risk everything on the fate of one fund, instead you can invest in a fund that is diversified over several hedge funds, so that the risk is more evenly spread. With an FOF, the size of your investment can be relatively low and you do not have to become an expert on the detailed strategies of numerous hedge funds, which can become quite intricate.You do, however, face a challenge — you must select the right fund manager. Many fund managers tout excellent track records. While it’s nice to be lucky, how can you be sure the manager’s string of good luck won’t run out just as you deposit your money? That’s an essential question. Careers and many millions of dollars hang in the balance.Finding Your ManagerThe key is to find the right...

About the Author

Joseph G. Nicholas, J.D., is founder and chairman of HFR Group, LLC, which has interests in asset management, fund-of-funds management, an investment advisory firm and Hedge Fund Research, Inc., a leading supplier of hedge fund data. A frequent lecturer and media expert on alternative investment topics, he is author of Investing in Hedge Funds and Market-Neutral Investing.

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