Fund of Funds Investing: A Roadmap to Portfolio Diversification

Introduction

The day is short, the task is great. . .

—Ethics of the Fathers, Chapter 2, Verse 20

In Fund of Funds Investing: A Roadmap to Portfolio Diversification, we take a brief look back at the history of the fund of funds industry, examine where the industry is today in the wake of the Madoff scandal, the credit crisis, and the failure of many hedge fund managers to perform over the past few years. Our goal is to provide both a roadmap for first-time investors looking for an entry point into the wacky, wild, weird, and exciting world of fund of funds investing and a resource guide for sophisticated investors who may not be certain what the optimum investment approach should be for allocating their assets.

According to our calculations, hedge fund industry assets exceeded $10 trillion (or was it really $2 trillion?) at year-end 2007 and dropped to $6 trillion by year-end 2008 (which we discuss in the book), and closely approached mutual funds in assets under management. This book will try to simplify things as much as possible and provide you with an even playing field for making decisions.

Asset growth in the hedge fund industry has been fueled by investors of all shapes and sizes, including pension plans, endowments, foundations, private banks, family offices, and high net worth individuals looking for returns that differ from those of traditional long-only investments. As institutional investors and their allocators look to find solutions to ongoing and future capital needs, ...