The more foreign the market, the more funds-of-funds

The world’s largest institutional investors are increasingly building their own home-region private equity programs, but turning to fund-of-funds for the rest of the world particularly when it comes to Asia, says a Hong Kong-based partner of the first fund-of funds to ever build a product covering that region.

Sally Collier, who recently moved to Hong Kong as a partner of Pantheon Private Equity, said the “mega buy-out” managers who enjoyed a heyday in 2006-7 often had global presences, large capacity and were relatively accessible for researchers.

However, those managers were “no longer flavour of the month”, and demand had now shifted to the less-leveraged players in the middle market.

“The challenge here is that these players might only be raising $1.5 to 2 billion per fund, and they are becoming oversubscribed,” Collier said. “They’re the ones that take serious resources to find and access.”

Many of these “growth-oriented” mid-market private equity general partners were popping up in China and India, Collier said, where there was really no buy-out market to speak of.

Pantheon launched its first Asian private equity fund-of-funds in 1994, and raised its last one in 2006, closing it at $800 million for the seven-year closed-end vehicle.

Sponsored Content

Collier defended the private equity practice of charging fees on committed capital before it was invested, saying that to do otherwise would encourage general partners to make deals no matter what.

“As 2007 progressed our managers slowed down on new investments, and it was that fee structure which allowed them to do that.”

The Pantheon partner did allow that more “fee discussions” were happening in the cost conscious age following the global financial crisis.

She cited the recent example of a Missouri-based institution bargaining a private equity manager into paying 80 per cent of transaction costs for deals made on its behalf, where the historical norm has been a 50:50 split between the general and limited partners.

One response to “The more foreign the market, the more funds-of-funds”

  1. It makes sense that funds of fund become a norm. It lower fees and ease of management will benefit investors.

    ifund

Leave a Comment

Sort content by

Islamic laws highlight government fund restrictions

Malaysia’s $130 billion Employees Provident Fund plans to expand its global Islamic bond program by about 50 per cent this year in a move which highlights some of the challenges faced by fiduciary investors at many of the world’s government-controlled funds.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Chinese growth prompts further inflation fears

The Chinese economy refuses to slow down. The latest GDP growth figures have once again surprised on the upside, prompting new fears about inflation.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

NEST to offer Sharia option

The UK’s National Employment Savings Trust (NEST) is looking for a Sharia-compliant funds manager to manage a global equity fund as it plans to offer more than its default strategy to members.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

New research on sovereign funds from EDHEC Asia

New thematic research programs examining sovereign investment funds management and a more general initiative on best investment practices will be a part of the academic work of the recently opened Asia office of Europe’s EDHEC-Risk Institute.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Investors focus on hedge fund correlations: survey

Accessing non-correlated strategies has emerged as the top institutional aim in hedge fund investing, according to a survey by SEI Knowledge Partnership and Greenwich Associates, reflecting a shift in objectives since the 2009 survey, when institutions reported diversification and absolute return as priorities.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Detecting crowded trades in currency funds

This article by Momtchil Pojarliev and Richard Levich proposes a methodology to measure crowded trades and applies it to currency managers. According to the authors, this methodology offers useful insights regarding the popularity of certain trades among hedge funds and provides regulators with another tool for monitoring markets.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Previous