A fund of hedge funds is an investment vehicle that allocates its investors money to many different hedge funds. A good fund of funds will deliver consistent returns with lower volatility than traditional asset classes or a more concentrated, self-selected portfolio of hedge funds. A fund of funds is not a random composition of hedge fund strategies. Rather, it is a combination of uncorrelated strategies that creates an optimal portfolio that generates stable returns with low volatility under most market conditions. A fund of hedge funds allows the investor to conservatively incorporate hedge funds into a traditional portfolio. Generally speaking, most institutions, pension funds, endowment funds, private banks and family offices have preferred to utilize the fund of funds approach.

Paradigm Fund of Hedge Funds: Investment Brochure