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.
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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.
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).
His smaller leveraged fund was one of the best-performing hedge funds in 2012.
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.
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.
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The forum title was named after John Bogle, founder of Vanguard mutual funds and the father of low-cost index fund investing.
Money-market funds are a specialized kind of mutual fund that is restricted to investing in very short-term securities with little chance of default.
Hodson has bagged 12 investments for the fund, which is part of the London-based Beta Funds family and trades on the Irish Stock Exchange.
Known as funds-of-funds, firms such as Financial Risk Management and Synergy Fund Management have received billions of dollars from investors in order to assemble diversified portfolios of underlying hedge funds.
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