Hedge fund of funds are investments that invest in other hedge funds. Hedge fund of funds provide opportunities for increased diversification, access to highly desirable funds, and fund selection and monitoring expertise. However, hedge fund of funds include a double layer of fees, dramatically reducing the investments’ appeal.
Hedge fund of funds allocate contributed capital between a variety of hedge funds. Normally, a portfolio of 15 to 25 different hedge funds is used. Many, but not all, hedge fund of funds are register with the SEC, and have lower minimum investments …

This interesting PBS video explains the rise and the risks of hedge funds. The video does a good job of explaining the potential negative impact from the dramatic amount of leverage used by some hedge funds. Also, the video features hedge fund manager and author Nicholas Taleb, who discusses the posibility of black swan events.

Background
Long Term Capital Management(LTCM) was a hedge fund established in 1994 by John Meriwether, a very successful bond trader at Salomon Brothers. At Salomon, Meriwether was one of the first on wall street to hire top academics and professors. Meriwether established a team of academics who applied models based on financial theories to trading. At Salomon, Meriwether’s group of geniuses generated amazing returns and demonstrated an unparalleled ability to precisely calculate risk and other market factors.
In 1994, Meriwether left Salomon and established LTCM. The partners included two Nobel Price-winning economists, …