Funds have lagged since the financial crisis
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One part of the private equity market has been lagging the rest of the PE sector in the past 10 years but managers are working hard to catch up.
Private equity funds of funds have fallen out of favour with large investors’ in-house investment teams and only 14% say funds of funds have presented the best investment opportunity in 2017 with the same proportion targeting new investments in funds of funds in the coming 12 months.
According to analysts at Preqin, funds of funds managers are more likely than other investor types to focus on emerging manager funds (56% vs. 27%), more likely to co-invest alongside commingled funds (74% vs. 37%), and more likely to use separate accounts (67% vs. 25%).
“Although the private equity fund of funds industry has seen relatively stable levels of capital raised over recent years, these vehicles are accounting for a smaller proportion of overall private equity fundraising,” said Preqin’s head of PE products Christopher Elvin. “By turning their attention and expertise towards emerging manager funds, as well as towards alternative investment structures, private equity fund of funds managers are adjusting their practices and seeking to offer investors more tailored options for accessing the private equity market.”
The private equity funds of funds market is dominated by active players in the US (141) with Canada, Australia, Singapore and Hong Kong each having just 4.
Elvin says that the sector remains important for smaller investors who have been increasing their allocation of funds to private equity in recent years.
“Funds of funds remain an essential component of the industry, offering these investors the ability to access larger funds, and providing the expertise and experience that most smaller investors do not have in-house. As long as fund of funds managers are able to properly target these smaller investors by demonstrating their value in their respective niches, the fund of funds industry can continue to see growth in the years to come,” Elvin said.
Private equity funds of funds have fallen out of favour with large investors’ in-house investment teams and only 14% say funds of funds have presented the best investment opportunity in 2017 with the same proportion targeting new investments in funds of funds in the coming 12 months.
According to analysts at Preqin, funds of funds managers are more likely than other investor types to focus on emerging manager funds (56% vs. 27%), more likely to co-invest alongside commingled funds (74% vs. 37%), and more likely to use separate accounts (67% vs. 25%).
“Although the private equity fund of funds industry has seen relatively stable levels of capital raised over recent years, these vehicles are accounting for a smaller proportion of overall private equity fundraising,” said Preqin’s head of PE products Christopher Elvin. “By turning their attention and expertise towards emerging manager funds, as well as towards alternative investment structures, private equity fund of funds managers are adjusting their practices and seeking to offer investors more tailored options for accessing the private equity market.”
The private equity funds of funds market is dominated by active players in the US (141) with Canada, Australia, Singapore and Hong Kong each having just 4.
Elvin says that the sector remains important for smaller investors who have been increasing their allocation of funds to private equity in recent years.
“Funds of funds remain an essential component of the industry, offering these investors the ability to access larger funds, and providing the expertise and experience that most smaller investors do not have in-house. As long as fund of funds managers are able to properly target these smaller investors by demonstrating their value in their respective niches, the fund of funds industry can continue to see growth in the years to come,” Elvin said.
