Study says funds of hedge funds see limited diversification benefits

FoHFs see limited diversification benefits


Investing in hedge funds can be a risky business. For this reason, it is logical to assume funds of hedge funds (FoHFs) should protect themselves by diversifying across as many underlying hedge funds as possible.

However, a recent academic study led by Stephen Brown, a professor of finance at New York University’s Stern School of Business, challenges this assumption. A misplaced emphasis on diversification may be contributing to performance degradation and increased tail risk in FoHFs, according

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