This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/fund-of-funds-in-luxembourg

What is a fund of funds?

A fund of funds, or FoF, is a fund that invests into other funds. The FoF does not invest directly in underlying assets such as securities, bonds or real estate. Instead, it invests into portfolios of other funds. In some jurisdictions, FoFs are also referred to as as multi-manager funds.

FoFs can be focused on various sectors, such as hedge strategies, private equity, bonds and fixed income, and real estate, to state a few.

What are the advantages of setting up multi-manager funds?

Multi-manager funds offer the advantage of a diversified pool of investments that is managed by different fund managers.

In many cases, retail investors do not have access to funds that have high subscription costs and lack distribution channels. FoFs can provide such investors access to these funds.

An additional benefit is the risk spread. Investing in portfolios of different fund managers provides the investors an additional layer of security. Also, the FoF can be structured in a way that leads to the diversification of sectors and geographies, thus reducing the overall risk exposure.