What is the primary purpose of a Fund of Funds (FOF)?

A Fund of Funds (FOF) serves the primary purpose of investing in a diversified portfolio of other funds, typically hedge funds or other pooled investment vehicles. This allows investors to gain exposure to various asset classes and investment strategies through a single investment vehicle. By pooling capital and investing in multiple funds, a FOF aims to achieve a broader diversification, which can mitigate risks compared to investing in a single fund. Additionally, this structure enables investors to benefit from the expertise of the managers of the underlying funds, who specialize in various market segments or investment strategies.

Investing solely in equity markets, managing direct investments in real estate, or facilitating tax-free investments do not encapsulate the essence of what a Fund of Funds is designed to do. While each of these approaches serves specific investment goals, they do not provide the diversified multi-fund investment strategy that characterizes a FOF.