Tuesday, December 16, 2008

The case for fund of funds vanishes

FOFs sold themselves to investors -- both institutional and retail -- on the basis they offered three important advantages: diversification, access to sought-after managers and due diligence. The financial crisis had already done in the first two; Mr. Madoff may do in the third.

The case for FOFs as a means of diversification has been undermined by poor results. In the year leading up to the end of October, the average FOF was down 19% -- worse than the average single-manager hedge fund, which was down 17.7%.

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