Abstract

http://ssrn.com/abstract=1121735
 
 

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Do Funds-of-Funds Deserve Their Fees-on-Fees?


Andrew Ang


Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Matthew Rhodes-Kropf


Harvard Business School - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Rui Zhao


BlackRock, Inc.

April 2008

NBER Working Paper No. w13944

Abstract:     
Since the after-fee returns of funds-of-funds are, on average, lower than hedge fund returns, it is easy to conclude that funds-of-funds do not add value compared to hedge funds. However, funds-of-funds should not be evaluated relative to hedge fund returns in publicly reported databases. Instead, the correct fund-of-funds benchmark is the set of direct hedge fund investments an investor could achieve on her own without recourse to funds-of-funds. We use asset allocation concepts to estimate characteristics of the fund-of-funds benchmark distribution. Since the benchmark characteristics are reasonable, we conclude that funds-of-funds, on average, deserve their fees-on-fees.

Number of Pages in PDF File: 34

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Date posted: April 17, 2008  

Suggested Citation

Ang, Andrew and Rhodes-Kropf, Matthew and Zhao, Rui, Do Funds-of-Funds Deserve Their Fees-on-Fees? (April 2008). NBER Working Paper No. w13944. Available at SSRN: http://ssrn.com/abstract=1121735

Contact Information

Andrew Ang (Contact Author)
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Matthew Rhodes-Kropf
Harvard Business School - Entrepreneurial Management Unit ( email )
Soldiers Field Road
Rock Center 312
Boston, MA 02163
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Rui Zhao
BlackRock, Inc. ( email )
55 East 52nd Street
New York City, NY 10055
United States
2128105015 (Phone)
2128108764 (Fax)
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