The world of funds of funds

Michael Stein, Svetlozar T. Rachev, Wei Sun

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

In this paper we provide a review of developments in the fund of funds (FoF) industry as well as related academic research work. Since the genesis of this sort of financial product in the 1960s, huge capital inflows have generated a total of US $1,200 billion of worldwide FoF assets under management as of year-end 2007. Being portfolios built out of other portfolios and assets, FoFs are a special type of investments and therefore have distinct advantages and disadvantages in comparison with other investment vehicles. When reviewing both the academic research related to the unique, or at least distinct, features of FoFs and discussing market developments, we address a good number of interesting questions and challenges. Specifically, we find that classical methods of research and assessment may beinsufficient to address these questions in both theoretical and quantitative aspects. The need for a distinct treatment of FoFs is even more evident when focusing on the dynamic nature of financial market developments and increasing global competitiveness. As past research work on FoFs is scarce, especially when being compared to the amount of research work on funds, we conclude that further investigation of this sort of financial asset is necessary.

Original languageEnglish
Pages (from-to)7-15
Number of pages9
JournalInvestment Management and Financial Innovations
Volume5
Issue number2
StatePublished - 2008

Keywords

  • Fund of funds (FoF)
  • Fund portfolios
  • Hedge funds
  • Multi manager funds

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