There’s this question that I’m confused about:
There is an investor investing in a fund of funds, but is concerned with the risks associated with such investing. Which of the following benefit and drawback in combination, about fund of funds investing, when compared to investing in individual hedge funds is most accurate?
*** I chose the one with the following benefit and drawback:
Benefit of Fund of Funds
May grant investors access to highly sought-after closed funds.
Drawback of Fund of Funds
Returns are most likely going to be spent on additional management fees.
Aren’t these two statements correct? The Qbank marked this as wrong and put another answer as correct. I just need to know why the statement above is wrong because both seem correct to me. Thanks.
The following benefits and drawbacks were listed as correct:
Enable investors with limited capital to invest in a portfolio of hedge funds.
On a risk-adjusted basis, net-of-fees performance may be lower than that of individual funds.