Fund of hedge funds

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A fund of hedge funds is a fund which invests in several different hedge funds to spread the risks. Funds of hedge funds select hedge fund managers and construct portfolios based upon those selections. The fund of hedge funds is responsible for hiring and firing the managers in the fund. Some funds of hedge funds might have only one hedge fund in it, thus lets ordinary investors into a highly-acclaimed fund, or many hedge funds.

Funds of hedge funds generally charge a fee for their services, always in addition to the hedge fund's management and performance fees, which can be 1.5% and 15-30%, respectively. Although returns can be high, fees will always cut into your profits and sometimes make your total return less than what it would be if you did it alone or with an average market mutual fund or ETF.