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.