In May of 1997, the New York Times published an article on three Goldman Sachs money managers who left that company to start a new investment firm. Michael Horowitz, Gregg Hymowitz and Mark Fife started EnTrust Capital Inc. in New York City to manage money for high net worth clients such as pensions and profit sharing plans, charities, corporations, endowments and private individuals and families. They invest their clients’ money in the EnTrust Capital fund of funds investment vehicles and they currently manage $12 billion in assets.
Many people invest their money in mutual funds where the fund manager invests in stocks, bonds, cash or a combination of the three but EnTrust invests in what are known as fund of funds. Fund of funds are like mutual funds except the managers only invest in a collection of hedge funds. Fund of funds allows more people to invest in hedge funds because investors do not have to be accredited to make an investment. To make an investment in an individual hedge fund, the investor has to have a net worth of at least a million dollars, which does not include the value of their primary residence, and they have to have an annual income of at least $200,000. Fund of funds are able to get around this requirement by having their money managers register with the Securities and Exchange Commission whereas individual hedge fund managers may not be required to register with the SEC. Fund of funds money managers registering with the SEC allows for the due diligence process to take place on these managers such as doing background checks and verifying credentials and experience which is a common practice for mutual fund managers.
The benefits of investing in a fund of funds money management firm like EnTrust includes having access to hedge fund investments for people who do not qualify as accredited investors, having the ability to have a diversified investment strategy, and having the money managers go through the due diligence process to verify their background. The drawbacks include paying higher fees than one would pay for a mutual fund and diversification may water down returns. Investors should contact a company like EnTrust to see if the fund of funds investment strategy is right for them.