FoFs invest in hedge funds, private equity funds, or venture capital funds rather than directly into securities. They aim to mitigate manager-specific risk and achieve uncorrelated returns by allocating across styles such as market neutral, global macro, and quantitative strategies. Though beneficial for diversification, they often carry double-layered fees—management and performance fees at both fund and FoF levels. Due diligence and manager selection are key, and FoFs often engage in extensive Operational Due Diligence (ODD), mandate creation, and performance monitoring, including metrics like Sharpe Ratio and Value at Risk (VaR).