Do Funds-of-Funds Deserve Their Fees-on-Fees?

Abstract

Since the after-fee returns of funds-of-funds are, on average, lower than hedge fund returns, it is easy to conclude that funds-of-funds do not add value compared to hedge funds.However, funds-of-funds should not be evaluated relative to hedge fund returns in publicly reported databases.Instead, the correct fund-of-funds benchmark is the set of direct hedge fund investments an investor could achieve on her own without recourse to funds-of-funds.We use asset allocation concepts to estimate characteristics of the fund-of-funds benchmark distribution.Since the benchmark characteristics are reasonable, we conclude that funds-of-funds, on average, deserve their fees-on-fees.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 45 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.