FOFs

FOFs, or funds of funds, are investment vehicles that allocate capital to a portfolio of other funds rather than directly to securities. The aim is to achieve diversified exposure across managers, strategies, and asset classes while providing professional oversight and simplified access for investors.

FOFs come in several forms, including mutual funds of funds, hedge fund of funds, private equity funds of funds, and venture capital funds of funds. The structure can be open-ended or closed-end, and may be designed for retail or institutional investors. The fund-of-funds approach generally relies on a dedicated manager to select and monitor the underlying funds.

The investment process involves due diligence on underlying funds, ongoing risk monitoring, liquidity assessment, and periodic rebalancing of allocations as market conditions change. Key considerations include concentration risk, manager risk, liquidity risk, and potential correlations between underlying funds.

Costs and performance considerations are central to evaluating FOFs. They typically charge an annual management fee at the fund-of-funds level, plus any performance fees where applicable, on top of the fees charged by the underlying funds. This can result in higher overall expenses and potential performance drag, though FOFs can provide access to well-vetted managers and enhanced diversification.

Regulatory and fiduciary context varies by jurisdiction. In many markets, mutual funds of funds are governed by standard fund regulations and disclosure requirements, while hedge fund of funds and private equity funds of funds operate under alternative investment fund regimes and advisory rules. Suitability and transparency are important factors for investors considering FOFs.