A fund of funds is a type of pooled investment vehicle that primarily invests in other funds, instead of directly investing in securities of operating companies, often with the goal of achieving improved asset allocation, diversification, or other investment objectives.
Like all other pooled investment products, these funds are regulated by the SEC. SEC Rule 12d1-4 sets out procedures that provide a consistent framework for fund of funds arrangements.
As with any investment product, funds of funds have certain fees that are charged to investors. The fund of funds industry is fairly complex and involves many parties. One issue for investors in a fund of funds is that there are often increased management fees, since there are fees from the Fund, as well as from the funds that it invests in.
See, SEC Fund of Funds – A Small Entity Compliance Guide.
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