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Fees on Fees in Funds of Funds

Author

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  • Stephen Brown
  • William Goetzmann
  • Bing Liang

Abstract

Funds of funds are an increasingly popular avenue for hedge fund investment. Despite the increasing interest in hedge funds as an alternative asset class, the high degree of fund specific risk and the lack of transparency may give fiduciaries pause. In addition, many of the most attractive hedge funds are closed to new investment. Funds of funds resolve these issues by providing investors with diversification across manager styles and professional oversight of fund operations that can provide the necessary degree of due diligence. In addition, many such funds hold shares in hedge funds otherwise closed to new investment allowing smaller investors access to the most sought-after managers. However the diversification, oversight and access comes at the cost of a multiplication of the fees paid by the investor. One would expect that the information advantage of funds would more than compensate investors for these fees. Unfortunately, individual hedge fund

Suggested Citation

  • Stephen Brown & William Goetzmann & Bing Liang, 2002. "Fees on Fees in Funds of Funds," Yale School of Management Working Papers ysm309, Yale School of Management, revised 01 Sep 2009.
    • Handle: RePEc:ysm:somwrk:ysm309
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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