According to modern portfolio theory, the benefit of diversification can be the reduction of volatility while maintaining average returns.
"[4][5] After allocation of the levels of fees payable and taxation, returns on FOF investments will generally be lower than what single-manager funds can yield.
It became clear that a motivation for this was the lack of fees by Madoff, which gave the illusion that the FOF was performing well.
The due diligence of the FOFs apparently did not include asking why Madoff was not making this charge for his services.
[7] 2008 and 2009 saw FOFs take a battering from investors and the media on all fronts from the hollow promises made by over-eager marketers to the strength (or lack) of their due diligence processes to those carefully explained and eminently justifiable extra layers of fees, all reaching their zenith with the Bernie Madoff fiasco.
Nonetheless, fund-for-funds remain important in particular asset classes, including venture capital and for particular investors in order for them to be able to diversify their too low or too high level of assets under management appropriately.
This structure simplifies management by separating allocation from security selection.
Since a provider may have many target dates, this can greatly reduce duplication of work.