Fund Of Hedge Funds

A fund of hedge funds is a fund which invests in several different hedge funds to spread the risks. Funds of hedge funds select hedge fund managers and construct portfolios based upon those selections. The fund of hedge funds is responsible for hiring and firing the managers in the fund. Some funds of hedge funds might have only one hedge fund in it, thus lets ordinary investors into a highly-acclaimed fund, or many hedge funds.
Funds of hedge funds generally charge a fee for their services, always in addition to the hedge fund's management and performance fees, which can be 1.5% and 15-30%, respectively. Although returns can be high, fees will always cut into your profits and sometimes make your total return less than what it would be if you did it alone or with an average market mutual fund or ETF.
The Bayou Hedge Fund Group was a group of companies and hedge funds founded by Samuel Israel III in 1996. Approximately $450m was raised by the group from investors. It is alleged investors were defrauded right from the start with funds being misappropriated for personal use. It is also alleged that after poor returns in 1998 the investors were lied to about the fund's returns and a fake accounting firm was setup to provide misleading audited results.