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Types of Hedge Fund Investors
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Types of Hedge Fund Investors Types of Hedge Fund Investors Types of Hedge Fund Investors Types of Hedge Fund Investors



Types of Hedge Fund Investors
Types of Hedge Fund Investors

Types of Hedge Fund Investors

managers see reinsurance as a way of gathering assets and holding on to
them longer.
FUNDS OF HEDGE FUNDS
Funds of funds take money from investors, invest the funds, and charge a
management and incentive fee on the gross returns. What distinguishes a
fund of funds from other hedge funds is the fact that the assets held by the
manager are primarily other hedge funds (which also charge a manage-
ment and incentive fee).
Investors may invest in funds of funds for a variety of reasons. Fund
of funds managers have considerable knowledge about hedge fund strate-
gies and may be able to identify attractive trends. Most fund of funds
managers conduct extensive due diligence research before investing in any
hedge fund and may be able to reduce the chance of losing money to
fraud. Funds of funds may have lower minimums and shorter lockup peri-
ods than the funds they own. Funds of funds usually invest in many hedge
funds to get the risk-reducing benefit of diversification. Finally, funds of
funds may have investments in hedge fund managers that are closed to
new investment.
Fund of funds investors generally don't invest in new hedge funds, but
many fund of funds managers seek out funds with two to five years of per-
formance. Many larger funds of funds will not invest in small funds be-
cause they want to limit the number of funds they retain in their portfolio.
Although funds of funds create portfolios reflecting the biases and
preferences of the managers, funds of funds as a group tend to follow in-
vestment trends. They tend to invest in strategies that are in favor with in-
vestors (which changes over time). They tend to underweight strategies
that have recently done poorly relative to other hedge fund strategies.
CONSULTANTS AND HEDGE FUND INVESTING
Many new hedge fund investors hire consultants to assist in the decision-
making processes. Although the consultants do not invest their own money
in hedge funds, they can influence on how moneys are invested.
Large institutional investors are more likely to hire consultants to re-
view their hedge fund investments. Pension funds, endowments, and foun-
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HEDGE FUND COURSE
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