Fund of Funds

A fund that invests in other funds rather than directly in companies.

Example

A vehicle committing to 20 venture funds across three vintage years on behalf of individual investors.

It adds a second layer of management fees and carried interest on top of the underlying funds' own terms.

Management fee — A recurring charge for running an investment, usually quoted as a percentage of the assets held and taken every year regardless of the result.
Carried interest — The share of a fund's profit that the manager keeps, conventionally around twenty percent, usually payable only above a defined return to investors.
Diversification — Holding enough genuinely different assets that no single outcome decides your result. It reduces risk specific to individual holdings; it does not reduce the risk they all share.

Access and diversification, bought with a second layer of fees — Funds of funds and investment platforms give individuals access to managers and diversification they could not reach directly, in exchange for fees charged on top of the underlying funds' own fees. (11 min)