What’s the difference between hedge funds with fund-of-funds clients and those without them?
| Apr 12th, 2010 | Filed under: Academic Research, Hedge Fund Industry Trends, Today's Post | By: Alpha Male |
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One of the central value propositions of a fund of hedge funds is its ability to diversify among the notoriously idiosyncratic risks of single manager hedge funds. So you’d think a portfolio of funds of funds would ultimately perform akin to a portfolio of all hedge funds. But as we noted in February, 2009 saw a major divergence between funds of funds indices and single manager indices. We wondered what would have caused this. There were several theories.
Most theories rested on the assumption that the kinds of funds in which FoF’s invest are fundamentally different than the average hedge fund. A paper originally written prior to 2009 offers some tantalizing clues about the kinds of funds that FoF managers seek out. “A Random Walk by Funds of Funds Manager?” was originally written in late 2008 by Frans De Roon, Jenke ter Horst and Jingqiang Guo of Tilburg University in the Netherlands. But the paper hit our radar screens when it was updated a few months ago, containing data up to May 2009. More…
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