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Alternative Market Briefing

Zenith asks if the perceived expense of funds of funds is accurate

Monday, May 13, 2013

Beverly Chandler, Opalesque London: Zenith Investment Partners’ Daniel Liptak examined the widely debated theory that funds of hedge funds are dead in this month’s issue of their alternatives newsletter. Starting from a piece in the March issue of InvestHedge by Greg Fedorinchik of Mesirow, Liptak reports that the article looked at the cost of accessing hedge funds through four approaches: Investment in a commingled FoHF; Investment in a single investment fund (fund of one) managed by an external expert; Direct investment in hedge funds with the help of a generalist consultant; Direct investment in hedge funds with the help of a specialist hedge fund consultant.

Liptak reports that the costs required to invest directly in hedge funds are those that an indirect approach can reduce. Principally, these costs are the level of service provided by the consultant, the cost of internal staff to execute and monitor the investments. For Fofs, the key costs are considered the management fee and the type of structure – commingled or fund of one. And importantly, the scale of the Fof in negotiating fees with underlying managers.

Fedorinchik argues that the fee negotiating ability of a Fof can result in meaningful cost reducti......................

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