Do funds of hedge funds really add value for investors?
Funds of hedge funds remain the most oft-used funnel to pour money into hedge funds. So does using this conduit increase chances of profit?
In the aftermath of the bursting of the internet bubble, institutional investors suffered considerably from the long bear markets, confirming that geographic, sector and (traditional) style diversification generally turn out to fail precisely when they are needed the most (see, for example, Longin and Solnik (1995)).
In an attempt to address this issue, an increasing proportion of investors have showed interest in the diversification benefits of alternative investment strategies. Most of them are
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