Hedge Fund of Fund Goals and Rational Investor Expectations

Hedge Fund of Fund's Goals:

• Provide more stable and consistent positive returns than equity markets
• Provide returns equal to or above most actuarial assumptions

Rational Investors should expect that Hedge Fund of Funds:

• Will lag the equity markets, when markets are doing extremely well
• Will do better than the equity markets, when markets are flat or doing poorly
• Will have positive returns much more frequently than equity markets
• Hedge funds are not loss-proof, they will have negative months and quarters, but the frequency and magnitude of the declines will be far less than the equity markets
• Will use more complex and non-traditional strategies than traditional portfolios
• Will be less liquid and less transparent than traditional portfolios
• Will have higher fees than traditional portfolios