Funds of hedge funds (FOHFs) are funds that diversify their investments across a portfolio of hedge funds. Usually there is a diversification over various strategies, which limits the risk in relation to returns. Funds of hedge funds are in many cases the only way of investing into hedge funds. FOHFs are, however, not only targeted to retail clientele, as also many institutional investors are willing to let experienced experts to tackle the challenge of hedge fund picking.

FOHFs have many characteristics that make them interesting instruments:

• They enable individuals to invest into hedge funds that have a minimum investment threshold of hundreds of thousands or millions.



• The portfolio is diversified, which gives a better return for the risk taken than an investment in a single hedge fund.



• The portfolio managers are professionals who continuously scout new funds and perform a thorough due diligence on them.



• The portfolio managers of FOFS monitor the funds with investments and have regular dialogue with their portfolio managers. This is to make sure that there is a continuous flow of investment ideas and the risk level stays in the agreed limits.



• Institutional investors occasionally get rebates for their investments in singe hedge funds. In many FOHFs these rebates are added into the FOHF’s assets for investors’ benefit.

Printed from www.3cfund.com at 07.09.2010.