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Thanks Ted for linking both Jaffe's article and the 53-page study. Must confess finding pages 29-53 of study a bit hard to fathom. Second cup of coffee should help. Better yet, maybe someone with statistical or scientific background could take a look. Some thoughts: (1) The potential conflict of interest is real. (2) Am pretty sure funds are required to report this potential COI in the FOF prospectus. (3) Not addressed is another way FOFs can harm investors. Some layer an additional "allocation fee" on top of the fees attributable to the funds inside the FOF. Oppenheimer is one that comes to mind in this regard. (4) Motives are difficult to establish. While the study supports disproportionate flows from some FOFs into "distressed" funds, it seems at least plausible the FOF manager sees real value in funds that have recently fallen from investor grace and can be bought at a perceived discount. (5) As always, Buyer Beware. Before buying any fund read both prospectus and recent annual and semi-annual reports - easily accessible on the web. The second should identify precisely the funds where a FOF was most recently invested. In the case of T. Rowe Price, they go the extra step showing current allocations, past target allocations and targets for the upcoming year so that you know if their thinking has changed. As mentioned at the onset, the potential for abuse is there. I guess if I smelled a rat in any of these allocation moves I'd not only flee the fund, but probably run from the family as well.
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