In a research report by Benoit Dewaele and Hugues Pirotte of the Brussels Free University in Belgium and Nils Tuchschmid and Erik Wallerstein of the Geneva School of Business Administration, fees associated with fund of funds wipe out almost all alpha for investors. Alpha is defined as risk-adjusted investment gains. Only 22% of fund of funds create any alpha. Of these funds, one in twenty delivered alpha by picking the best performing funds. The remainder was delivered through hedge fund indices.
50% of fund of fund managers underperformed the indices. Hedge funds are not adding value over the past thirty years. The average fund has a lower return than a stock market index fund. The analysis was done on 1,300 fund of funds from 1994 to 2009.
The report's title is Assessing the Performance of Funds of Hedge Funds.
The source for this article can be accessed here.
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