Do Funds-of-Funds Deserve Their Fees-on-Fees?
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Date: 09-19-2005
Start Time:
6:00pm
End Time: 7:30pm
Speaker: Andrew Ang, Columbia University (Graduate School of Business)
Location: 412 Schapiro CEPSR, Davis Auditorium
ABSTRACT
Probably. Previous research finds that after-fee returns in funds-of-funds are, on average, inferior to hedge fund returns and, thus, it appears that funds-of-funds do not appear to add value. We show that funds-of-funds should not be evaluated relative to hedge fund returns from reported databases. Instead, the correct fund-of-funds benchmark is the return an investor would achieve from direct hedge fund investments in a world where fund-of-funds investments are not available. To characterize the true fund-of-funds benchmark, we take a portfolio allocation perspective that quantifies the diversification benefits from adding a fund-of-funds relative to adding hedge fund investments that an investor could make on her own. We find that assumptions required to believe that the average fund-of-funds adds value are reasonable.
BIO
Andrew Ang is the Roger F. Murray Associate Professor of Finance at the Graduate
School of Business at Columbia University. Professor Ang specializes in
empirical asset pricing and applications of econometrics to financial problems.
Ang's work focuses on macro modelling of the term structure, asset allocation,
and the predictability of asset returns. He is an Associate Editor of the Review
of Financial Studies, a Faculty Research Fellow of the National Bureau of
Economic Research, and is the recipient of several grants, including grants from
the National Science Foundation, Q-Group, INQUIRE-Europe and INQUIRE-UK. Ang
teaches the elective Capital Markets and Investments.