One pension-scheme manager says he demanded, and quickly secured, a halving of his fee rate from a fund-of-funds.
The SEC custody rules requires that they be distributed to investors within 120 days (or 180 days in the case of fund-of-funds).
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This makes it all the more important that fund-of-funds managers are vigilant.
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In early October, Fidelity launched 11 new Income Replacement Funds, which are essentially fund-of-funds with horizon dates in two-year increments from 2016 to 2036.
Fund-of-funds managers aim to cut through all this complexity, by selecting on their investors' behalf a few of the 6, 000 or so hedge funds in existence.
ECONOMIST: Funds of hedge funds: Borrowing and betting | The
Carlyle says it allows investors to pick and move among different market niches, and allocate capital across many funds without being charged the double fee that a fund-of-funds would incur.
Currency-only hedge funds made a 6% loss in 2011 and a gain of just 0.8% in 2012, according to a benchmark index run by fund-of-funds manager Parker Global Strategies LLC.
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Finally, the investor could allocate to a fund-of-funds, which would make available to him a portfolio of different private equity funds across strategies and vintage years, many of which he would not have been able to invest in indirectly.
Now throw in something for the 2-and-20 crowd, namely private equity managers, venture capitalists, hedge fund operators and funds-of-hedge-funds operators.
In a new paper, Jingzhi Huang of Penn State University and Ying Wang of SUNY-Albany examined the performance of 73 hedge fund-like mutual funds during the 2007 financial crisis.
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Its acquisition of AlpInvest makes it the first major buy-out firm to have a private-equity fund of funds.
Gil-Bazo and Ruiz-Verdu conclude that even after controlling for a host of fund characteristics, under-performing funds charge higher marketing and non-marketing fees.
Sales of real-estate fund positions by pension funds and other large institutions have been rare because only a handful of real-estate managers focus primarily on buying real-estate fund positions from other investors.
The emerging-growth fund is among the top-performing equity funds of 2003, returning 24% since January.
On top of the already high fees charged by a hedge fund a fifth of the investment return plus a management fee of 1-2% a fund of funds takes another slice, typically 10% of the return if the fund does well, plus a fee of around 1%.
This is the harsh reality of actively-managed fund results, and one more reason to own a diversified portfolio of low-cost index funds and ETFs.
If not, why is the pension comparing performance of its hedge funds against a hedge fund-of-fund benchmark which involves additional layers of fees and is easier to beat?
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"I don't like putting all my money with one guy, " says Altfest, who only recommends one hedge fund investment to clients--and that is a fund of funds (despite the higher fees).
Since its inception in 1992, Deutsche's no-load Fixed Income Fund, the larger of two with a 7.83% compound annual return after expenses ranks in the top 6% of all investment-grade funds with average maturities of five to ten years, says fund-tracking service Lipper Inc.
His smaller leveraged fund was one of the best-performing hedge funds in 2012.
The General License authorizes certain fund-raising and transfers of funds to Iran for earthquake relief for a period of 45 days.
Then again, according to Morningstar, this autopilot fund outperformed two-thirds of all other stock funds, including those run by managers trying to beat the market.
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He says the relatively high costs of hedge funds versus mutual funds--hedge fund managers typically charge a 1% to 2% fee plus 20% or more of any profits for the fund each year--don't make them the best option for most individual investors.
Ms Gee recommended that investors ask about the TER (total expense ratio) rather than the AMC (annual management charge) of a fund to give a more accurate idea of ongoing costs and look out for use of passive holdings such as those used by groups including T Bailey and 7IM, which, she says, have a comparably low-cost fund of funds offering.
As I point out in the forthcoming third-quarter issue of the Quarterly Low-Load Mutual Fund Update (which will be published soon), foreign funds outperformed their domestic counterparts in most categories.
Others either operate funds-of-hedge-funds (Goldman Sachs) or have set up separate hedge-fund arms (Gartmore and less successfully of late Bear Stearns).
Fidelity, the country's third-largest mutual-fund firm by assets, had been an early supporter of Facebook, with many of its funds bulking up on shares when the company went public.
Its National Investment Fund scheme of 1995 placed 414 state companies in the hands of western-managed funds that were subsequently listed on the stock exchange.
But what the data do not do is compare hedge fund performance with that of mutual funds--those comparatively boring investment pools for ordinary mortals.
Their competence and duty to advise seemingly encompasses anything a fund may encounter- asset allocation, manager and fund performance, personnel turnover at managers, real estate, private equity, international and emerging markets, hedge funds, fund of funds, brokerage-everything but consultant-related issues.
FORBES: The Duty To Investigate Pension Consultant Conflicts (September 1, 2001)
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