Who Benefits From Funds of Hedge Funds? A Critique of Alternative Organizational Structures in the Hedge Fund Industry (I)
Who Benefits From Funds of Hedge Funds? A Critique of Alternative Organizational Structures in the Hedge Fund Industry (I)
Author(s): Yang Cao, Joseph Ogden, Cristian TiuSubject(s): Economy, National Economy, Business Economy / Management, Micro-Economics, Public Finances
Published by: Facultatea de Management, Academia de Studii Economice din Bucuresti
Keywords: Hedge funds; Funds of funds; Illiquidity; Information asymmetry; Conflicts of interest; Adjacency risk; Contagion; Return performance;
Summary/Abstract: This paper provides a critique of alternative organizational structures in the hedge fund industry. Our critique is facilitated by several stylized models describing alternative industry structures. The models include: (1) An insideonly hedge fund model; (2) A straddling hedge fund model; (3) A straddling “feeder” fund of funds (FOF) hedge fund model; (4) A stand-alone outside hedge fund; and (5) An outside “feeder” FOF hedge fund model. Our discussion of these models, which centers on benefits vs. fundamental problems related to illiquidity, information asymmetry, and conflicts of interest, leads to several hypotheses about the differential characteristics and return performance of both individual hedge funds and FOFs.
Journal: Business Excellence and Management
- Issue Year: 1/2011
- Issue No: 1
- Page Range: 19-36
- Page Count: 18
- Language: English
