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As global investors look to diversify their portfolios, Fund of Funds are increasingly becoming more popular as an investment tool. It is believed that within the next few years, the demand for both institutional and retail products in Asia and the number of funds and fund of funds will double. Due to their diversity and spreading of risk, fund of funds are proving to be the most popular vehicle for these investors to enter this burgeoning market


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Funds of funds are portfolios of hedge funds offering investors exposure to a wide range of alternative investment styles and strategies. Funds of funds generally allocate capital to 15-30 hedge funds to achieve efficient risk diversification. Nevertheless a smaller number of funds may be used to concentrate capital on a particular strategy. Such funds of hedge funds aim to post high returns and are more concerned by manager and event risks. Conversely, a larger number of funds may be used to control for extreme risks. Most funds of funds invest in portfolios diversified by manager and strategy which enable them to produce consistent absolute returns with low levels of risk.