What is a fund of funds?

A fund of funds is an investment strategy that allocates capital to a diversified portfolio of other funds, such as hedge funds or private equity funds. This approach allows investors to gain exposure to a variety of underlying investment strategies and managers, spreading risk across different assets while benefiting from the expertise of professional fund managers. By investing in multiple funds, a fund of funds can achieve greater diversification than if the investor were to invest in just one fund or directly in securities themselves.

This strategy is particularly appealing to investors looking for focused management and portfolio diversification, as it aggregates the performance of multiple funds. Thus, the goal is not only to enhance returns but also to manage risks more effectively through strategic asset allocation.