Intermediary funds that advise pension funds or asset management companies on hiring hedge fund managers. They help the pension funds and asset management companies find the right hedge fund, advise them on investment strategies, and help them track the performance of the hedge fund.

Fund of funds is a relatively new development in the hedge fund industry and is one of the fastest growing segments of the hedge fund industry. Its growth has come in part from the increasing use of hedge funds by conservative money managers, such as pension plans, who are looking for ways to boost returns since the market sell-off beginning in the spring of 2000. By hiring a fund of funds, pension funds and asset managers, who often are required to invest funds conservatively, can become more comfortable investing some of their money with hedge funds, which often are known for their risky investment style.