(New York Times) DEEP-POCKETED investors have done famously well by depositing some of their surplus millions in hedge funds. The Yale University endowment, for example, has relied heavily on hedgefunds over the last two decades to earn annual returns of more than 16 percent a year.
Tempted to try to earn returns like those yourself by finding a way to include hedge funds in your own, more modest portfolio?
A fund of hedge funds – which contains investments in at least several individual hedge funds – may seem to be the solution. Not only do funds of funds offer some diversification, but they also generally require a lower initial investment than individual hedge funds, and they can be bought by people whose bank accounts are merely large, not colossal. And many hedge funds of funds are registered with the S.E.C., providing more transparency and oversight than is true for unregistered funds.
Well, as it usually turns out in investing, finding the right fund of hedge funds isn’t all that easy. Comparable data for different funds of funds is not readily available. What’s more, David F. Swensen, the chief investment officer of the Yale endowment, says that most investors shouldn’t even bother to look for one.
