Question #26
Reading: Reading 34 Hedge Fund Strategies
PDF File: Reading 34 Hedge Fund Strategies.pdf
Page: 10
Status: Correct
Correct Answer: A
Question
Two key advantage of multi-strategy hedge funds over fund-of-funds managers are:
Answer Choices:
A. economies of scale as different hedge fund strategies share the same administrative costs, and greater left tail risk than fund-of-funds
B. the ability and knowledge to rapidly make tactical reallocation decisions to the firm’s strategic allocation based on changing market conditions, and greater visibility to assess the overall risk exposure
C. more attractive fees for investors than fund-of-funds managers, and a greater level of diversification than fund-of-funds provide
Explanation
Multi-strategy managers operate multiple strategies under one organization and can react
or adjust to anticipated market conditions more rapidly than fund-of-funds managers,
which frequently have lockups and gates to negotiate when making allocation changes.