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Fund of Funds: Its Pros and Cons Towards the Average Investor


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Investing in a hedge fund is slightly like hiring someone to fix up your home. You can examine and do everything yourself, yet it can be less difficult letting an experienced specialist tackle it. This circumstance best displays what happens when an investor uses fund of funds investment method.

A fund of funds (FOF) is usually an investment product made up of various hedge funds. It’s a product made use of by investors who’ve smaller assets, limited capability to spread out with reference to hedge funds, or who don’t have enough expertise using hedge funds. Any fund that blend capital together, while having two or more managers to put money in currencies, commodities, or equity, is held to be an FOF. Investors allot their assets to FOF products so that they might diversify on the list of different manager’s styles while proceeding to minimize risk.

The FOFs, which you’ll find are structured as partnerships with limitations, afford several advantages for the investor. One benefit may be that investors are likely to skip the due diligence process. Due diligence is the time spent considering and interviewing different managers, and it’s a process that can be both costly and time-consuming to the regular investor. The FOF manager assumes this responsibility in place of his investors.

One more advantage may be that because FOFs use multiple managers, diversification is a possibility. Their capital is distributed amongst these managers, all whom employ their unique investment strategies. So, it is quite likely for your FOF investor to gain access to distressed fund, a long or short fund, along with a private equity fund, all through one investment vehicle.

Nevertheless, an FOF also possesses its own normal issues. One drawback is the added fees. When you are working on FOFs, a financier must accept that the underlying hedge fund contains its own fees, so does the manager for fund of funds Chicago has. This could result in “layers” of fees which might impact investor returns.

A second possible drawback is caused by the shortage of due diligence responsibilities. Simply because due diligence will now be shouldered by the FOF manager, the investor could possibly be fully dependent on the expert’s talent and expertise in choosing managers. Consequently, investors should only cope with a dependable FOF manager for financial planning Chicago has.

The FOFs could be a stress-free entrance directly into confusing hedge fund world for any limited investor, though this doesn’t mean every FOF will instantly certainly be a perfect fit. An investor should go through marketing materials on wealth management Chicago companies have just before investing, to make sure that he can grasp their FOF investment strategies along with the risks involved. You could read about hedge funds at magnum.com/hedgefunds/abouthedgefunds.asp.

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  • Posted On June 8, 2012
  • Published articles 7

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