Year: 2008
Type: report
Abstract: Since the after-fee returns of funds-of-funds are, on average, lower than hedge fund returns, it is easy to conclude that funds-of-funds do not add value compared to hedge funds.However, funds-of-funds should not be evaluated relative to hedge fund returns in publicly reported databases.Instead, the correct fund-of-funds benchmark is the set of direct hedge fund investments an investor could achieve on her own without recourse to funds-of-funds.We use asset allocation concepts to estimate characteristics of the fund-of-funds benchmark distribution.Since the benchmark characteristics are reasonable, we conclude that funds-of-funds, on average, deserve their fees-on-fees.
DOI: 10.3386/w13944
Authors: Andrew Ang, Matthew Rhodes-Kropf, Rui Zhao
Institutions: National Bureau of Economic Research, Columbia University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1586998858