Category II AIFs fund of funds
A Fund of Funds (FOF) is an investment product that does not make direct investments in stocks, bonds, or other assets. Instead, it invests its capital in a portfolio of other investment funds.
For Category II Alternative Investment Fund (AIF), the FOF invests in a variety of specialty funds, such as private equity, venture capital, debt funds, or even other FOFs, to give diversified exposure to alternative asset classes.
How FOFs Operate within Category II AIFs?
- Indirect Investment Approach: Unlike traditional funds, which buy securities directly, a FOF pools investor capital and invests it in a variety of different funds. Each underlying fund may target a certain specialization, such as venture capital, private equity, infrastructure, or structured debt.
- Layered Diversification: By investing in multiple funds, a FOF achieves a multi-layered diversification strategy. This not only spreads risk across asset classes and strategies, but it also leverages the experience of several fund managers.
- Management of a Fund of Funds: The FOF does not manage an underlying portfolio of individual assets; instead, its performance is determined by the success of the funds. Fund managers for a FOF are responsible for doing due diligence on numerous AIFs, regularly evaluating performance, and rebalancing allocations.
In summary, a Fund of Funds within a Category II AIF is a sophisticated investing mechanism that provides diversified exposure to various asset classes.FOFs reduce risk, increase diversification, and provide access to professional fund management by investing indirectly through a curated portfolio of specialist funds.
