Fund Of Funds
Well…first, there’s a fund. It has, say 100 stocks in it. Index fund. Mutual fund. Exchange-Traded Fund. But then there’s a fund…of funds. Not just a fund of stocks, but a fund of funds. Like...if there was a fund of funds that comprised 10 funds, and each fund had 100 stocks in it...then that fund of funds would be representing the performance of 1,000 stocks.
Notionally, a fund of funds appeals to investors because they can grow very large, and then directly negotiate with money managers to give what is essentially a wholesale discount to shareholders.
Say a fund of funds comes to a hedge fund that normally charges a 2 percent management fee and then takes 20% of profits. If that fund is investing a big chunk, say, 50 million bucks in that fund, maybe they can negotiate for 1.5% management fee and just 15% carry.
Not always doable, but that's the tacit promise of the fund of funds people, who knock on the doors of the wealthy asking for one percent a year for themselves for their own management fees...on top of what the hedge, mutual, and other funds want to charge.
Theoretically, there could also be a fund of fund of funds…but, uh...that’s a little too Inception for us.
Related or Semi-related Video
Finance: What is a Fund of Funds?5 Views
Finance a la shmoop what is a fund of funds? all right well first there's a
fund it has say a hundred stocks in it you know index fund, mutual fund,
exchange-traded fund or ETF but then there's a fund of funds not just a fund
of stocks but a fund of funds like if there was a fund of funds that comprise [Computer screens with graphs appear]
ten funds and each fund had a hundred stocks in it while then that fund of
funds would be representing the performance of a thousand stocks lots
and lots of stocks and stocks because Amazon ships a lot of box and box it's [Man wearing Dr Seuss hat discussing amazon boxes]
from dr. Seuss we got that for no charge notionally a fund of funds appeals to
investors because well they can grow very large the fund of funds can not the
investor when they're eating a lot because they're nervous in stock market
I do that and then directly negotiate with money managers to give what is
essentially a wholesale volume discount to shareholders of fund to funds thingies
well if fund of funds comes to a hedge fund that normally charges a 2% management
fee and takes 20% of profits well if that fund is investing a big chunk of [Lots of cash appears on a table]
that fund say 50 million bucks well maybe they can negotiate for one and a
half percent management fee in just 15% carry or something like that well it's
not always doable but that's the tacit promise of the fund of funds people who
knock on the doors of the wealthy asking for one percent a year for themselves [Fund of fund manager knocks on door and man opens door]
for their own management fees on top of what the hedge mutual and while other
funds want to charge theoretically there could also be a fund to fund to fund of funds
but that's just a little too inception for us you know so just watch
the fees if they they add up fund of funds can be fun....
Up Next
What are mutual funds? Mutual funds are an aggregation of stocks, professionally managed for a "small" fee. Investors wanting exposure to a given a...
What is Diversified Mutual Fund? Diversified mutual fund allow individual investors to obtain the benefits of risk mitigation through diversificati...