A Hurrah for Fund-of-Funds
Utilizing fund-of-funds can be beneficial for sovereign investors who lack large internal staff dedicated to alternatives. Many sovereign investors need the capability to have exposure to an asset class quickly.
Clearly, there is a trend of direct investing into hedge funds, but public investors also understand they might not have the research capabilities or skill to find or manage such investments. The fund-of-funds industry has been criticized for high fees and lackluster returns in recent years.
A fund-of-funds can speedily grow exposure to hedge funds when opportunities arise.
In addition, adopting the use of fund-of-funds allows public investor staff to jump onto market dislocations faster in various instances. The Australian Future Fund has taken this approach and nearly has a 20% exposure to hedge funds, including fund-of-funds.