Explanation

Multi-strategy funds typically experience lower volatility than funds-of-funds because:

• Multi-strategy funds operate within a single legal entity and allocate capital across different strategies internally, allowing for better risk management and diversification benefits.

• Funds-of-funds invest in multiple external hedge funds, which introduces additional layers of fees and potential correlation issues between the underlying funds.

• The internal capital allocation and risk management in multi-strategy funds typically result in more stable returns and lower overall volatility compared to the external fund selection approach of funds-of-funds.