“They are called "fund of fund" guys, and they tend to be fantastic salesmen, with slick charts, lots of metrics and a sense of risk that makes them seem like they are geniuses."
“Of course, if they were geniuses, they actually would be running money. They don't. They take other people's money, and for a fee, they put the money with still other people. They are middlemen.”
“OK, full disclosure: I always hated these guys. …. I thought they were parasites put on earth to prey on rich people and institutions too dumb or lazy to do their own work. I had total contempt for them. ”
As I read the post by Jim, I recognized back in 2005, that he was dead on with his thesis for a majority of the 1000 or so hedge fund of fund managers. That said, there are a select few that truly add value when allocating the monies. These "allocators" have the team experience that can actually perform thorough due diligence on management, portfolio construction, operational and portfolio risk on their underlying managers.The fund of funds industry grew as a cottage industry where originally they would simply provide "access" to managers instead of "due diligence" on managers. I refer to "access" providers as "relationship/marketing" firms. A majority of those rleationship firms that do not re-focus their model to "due diligence" will invariably disappear in this Post Madoff market.
In this case, Jim Cramer was prescient and the fund of funds industry needs to reorient and redefine itself in order to emerge in a more credible light going forward.
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