* (The future of) the fund of funds

For many years, industry observers have been confidently predicting the eventual demise of the fund of funds sector on the basis that, given the extra layer of fees, investors would sooner or later cut out the middle man and go direct to the funds they want. The statistics continue to show this simply is not happening – or at least not yet.

Ironically, the biggest negative news event of the year 2007, (the sudden collapse of Amaranth), in some ways demonstrated, yet again, just why funds of funds continue to be the most popular route for end-investors. While it could certainly not be described as good news for those fund of funds groups who allocated to Amaranth, their end-investor (Accredited investor) clients will generally have lost a lot less than investors who went direct. For most fund of funds groups affected, it ultimately became a performance issue, taking some of the shine off gains made elsewhere, rather than a life-threatening blow.

Investors in hedge funds can be categorised in many ways but the most clear distinction is between fund of hedge funds managers and direct investors: 1. Fund of hedge funds managers: These entities manage diversified portfolios of hedge funds (usually in the form of collective investment schemes), and provide their investors with services such as fund selection and risk management in return for a fee. 2. Direct investors: Hedge funds are aimed primarily at institutional and sophisticated investors. Direct investors include pension funds (public and private), endowments, foundations and family offices.

see detail:
(1) Alternative becomes ever more mainstream
(2) Are Funds of Funds Simply Multi-Strategy Managers with Extra Fees?