One of the more interesting articles I read recently was an article on the Fund of Fund investment strategy defying the collective consensus of its impending doom. No surprise to a 'ContraCapitalist' (sorry for the plug), but what's really behind this phenomenon. Part of this predicted demise was due to the success of the multi-strategy funds and the incorrect conclusion that these investments were fungible. Turns out these investments are quite different in their risk and return profiles. While there is that issue of the double layer of fees for fund of funds, in times like these it seems that investors are more willing to leave the investing to the professionals and pay up. An investment in a muti-strat fund is still an investment in one fund. A fund that you've agreed to let the manager embrace 'style drift' mind you. There is an inherent increased risk associated with these funds. These days capital preservation seems to trump capital creation and an investment in a fund that is well diversified across a spectrum of investments will undoubtedly have less risk than a singly invested position. I think modern portfolio theory still holds up these day, albeit less steadily.
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