Characteristics
- Funds of funds typically invest in 30 to 50 hedge funds, while a
firm such as ours, typically allocates to 8 to 10 funds of funds.
The idea is to create alpha-generating portfolios consisting of approximately
300 to 500 underlying hedge funds.
- Investment vehicles of ultra-diversified portfolios of hedge funds
are designed specifically to mitigate the risk of investing in hedge
funds.
- The investment vehicles are created with diversification processes
that are carefully analyzed and managed in a way to minimize correlations
during all types of market environments and cycles.
- Characteristics
- Higher returns than stocks, bonds, and the average funds of funds
- Volatility less than 1/3 of equities and comparable to intermediate
maturity bonds
- A Sharpe ratio of risk-adjusted returns at least 50% better than
the average fund of funds
- Less than 10% of the peak to valley decline of equities
- Returns at least 5% higher than US treasury bills
What these types of portfolios are not.
- They are not an index – the portfolios are actively managed
and should be a collection of the best hedge funds in the world.
- They are not necessarily a high fee based investment. Counter
intuitively and interestingly, many such funds have lower fees than
funds of funds. Login or call us for details.
Benefits of the structure
- Isolation of hedge fund returns while minimizing risk
- Broad risk diversification
- Professional fund management and oversight
- Elimination of onerous time-intensive due diligence requirements
- Easier audits as underlying assets are the funds of funds companies
themselves, not the underlying trades at the hedge fund level
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