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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27436
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| Title: | Fees on Fees in Funds of Funds |
| Authors: | Brown, Stephen J.
Goetzmann, William N.
Liang, Bing |
| Issue Date: | 1-Oct-2002 |
| Series/Report no.: | SC-AM-02-06 |
| Abstract: | Funds of funds are an increasingly popular avenue for hedge fund
investment. Despite the increasing interest in hedge funds as an
alternative asset class, the high degree of fund specific risk and the
lack of transparency may give fiduciaries pause. In addition, many of
the most attractive hedge funds are closed to new investment. Funds of
funds resolve these issues by providing investors with diversification
across manager styles and professional oversight of fund operations that
can provide the necessary degree of due diligence. In addition, many
such funds hold shares in hedge funds otherwise closed to new investment
allowing smaller investors access to the most sought-after managers.
However, the diversification, oversight and access comes at the cost of
a multiplication of the fees paid by the investor. It is not generally
understood that the incentive fee component of the fee on fee
arrangement may under certain circumstances exceed the realized return
on the fund. In this paper we argue that the disappointing after fee
performance of some fund of funds may be explained by the nature of this
fee arrangement. We examine an alternative fee arrangement that may
provide better incentives at a lower cost to investors in these funds. |
| URI: | http://hdl.handle.net/2451/27436 |
| Appears in Collections: | Asset Management
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