Fund of Funds
A "Fund of Funds" (FoF) is an investment strategy where a fund invests in multiple other types of funds rather than directly in stocks, bonds, or other assets.
For Limited Partners (LPs) who don't have the expertise or resources to evaluate individual VC funds or startups, a Fund of Funds can be an appealing option.
However, this convenience comes at a cost: double layers of fees.
Both the Fund of Funds and the underlying VC funds charge management fees, which can eat into returns.
Fund of Funds is often used by institutional investors, such as pension funds and endowments, to access asset classes like venture capital without having to navigate the complexities of individual fund selection.
It provides an additional layer of diversification but may result in reduced control over the portfolio, as the investor is entrusting multiple levels of fund managers to make investment decisions.
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