Industry ponders the future of fund-of-funds - AVCJ forum

K.Y. Tang, chairman and managing partner at Affinity Equity Partners, noted that the fund-of-funds accounted for 35% of his first fund and 25% of his second fund, and the share is expected to fall below 20% for the firm's fourth pan-regional buyout fund, which is targeting $3.5 billion.

Picking up on this theme, Jeremy Coller, executive chairman and CIO of Coller Capital, argued that LP demand for the traditional co-mingled fund-of-funds product had dwindled in response to disappointing performance, noting that since 2000 over half of fund-of-funds have delivered annual net returns of less than 8%.

However, Sebastiaan van den Berg, managing director with fund-of-funds HarbourVest Partners, countered that the industry as a whole has been in decline. Rather than falling into decline, what the industry is witnessing is an evolution of the fund-of-funds model.

"Fund-of-funds are essentially investing more and more in smaller country funds whereas the global and pan regional buyout firm are going more directly to the pension funds," he said. "So there is a bit of a shift."

Van den Berg added that in fact there were significant pools of capital coming from new investors, particularly pension funds in Asia, that previously haven't made any PE commitments. He expects fund-of-funds to play a role as these investors build out their private equity programs.

Coller asked in response whether these new investors might not equally well develop diversified programs by making direct commitments to the likes of KKR, The Carlyle Group and TPG Capital.

"Some do and some don't," said van den Berg. "But while investing in these funds does provide diversification within in the portfolio it is highly concentrated from a management perspective."

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Fund-of-funds
• Fundraising
• LPs
• GPs
• HarbourVest Partners
• Affinity Equity Partners
• AVCJ Events
• Coller Capital
• Fundraising
• Fund-of-funds