Mixed signals from Funds of Funds Performance in August
Sep 17th, 2007 | Filed under: Hedge Fund Industry TrendsThe Economist contains an interesting article this week on August’s hedge fund performance (“What Crisis? Exaggerated rumours of hedge funds’ demise“). While de-bunking the popularly-held belief that hedge funds absolutely tanked in August, the magazine also makes the following observation about funds of funds:
“All this will probably be great marketing for the fund-of-funds industry. Those funds should have diversified portfolios (at least 30 or so underlying funds) that invest in managers with different styles and areas of speciality. Some large pension-funds might previously have been thinking about choosing hedge funds on their own, but they will be reconsidering now that such a well known name as Goldman Sachs has shown it can get things wrong.”
And Jaeson Dubrovay, of New England Pension Consultants recently told Pensions & Investments:
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[...] All About Alpha on the divergence between performance between hedge fund of funds and the underlying fund universe. [...]
I think the chart from P&I actually makes a rather strong case for fund of hedge funds. Given that mathematically as a result of the second layer of fees, fund of funds should always trail single hedge funds if there were perfect reporting, the YTD and 1-year numbers are actually rather encouraging.