Single-strategy funds of hedge funds typically invest in how many hedge funds?

• A. 30 to 50
• B. 10 to 20
• C. 5 to 15
• D. 1 to 3

Answer: (C)

Single-strategy funds of hedge funds are designed to focus on a specific investment strategy or style, which necessitates a more concentrated approach in terms of the number of underlying hedge fund investments. Typically, these funds invest in a smaller number of hedge funds, often ranging from 5 to 15. This limited diversification is a reflection of the fund's strategy, allowing for more targeted exposure and potentially greater conviction in the selected hedge funds.

Investing in a smaller number of hedge funds allows the fund of hedge funds manager to closely monitor performance and risk, making it easier to implement effective oversight and adjustments as necessary. The concentrated nature of these investments also helps to reduce the complexity and costs associated with managing a larger portfolio. This structure contrasts with multi-strategy funds of hedge funds, which may include a broader range of underlying funds to capture different strategies, thus typically investing in a higher number of hedge funds.