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

Harvard endowment in hiring mode

The Harvard Management Company (HMC), which manages the assets of the Harvard Endowment, is hiring again after cutting up to a quarter of jobs earlier this year, with 18 investment, accounting and technology support jobs currently on offer, and chief executive, Jane Mendillo, citing a plan to add key investment professionals in coming months. mrec4inarticleinline

Institutions review securities lending programs

Almost half of US institutional investors are turning their back on securities lending programs, with cash collateral reinvestment losses the leading concern among three quarters of those who participated in a recent survey by Callan Associates, and for a lot of funds the next decision is what course to take in the recovery and mitigation

Feeling investment highs – before seeing snakes and spiders

Neuroeconomics provides a scientific explanation of why the vast majority of investors fall prey to the market cycle- and can’t resist it. Simon Mumme talks to director of UBS Wealth Management Research, Joachim Klement about the limits of active investing. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

KIA to divest big stake in Kuwait telco

The $202 billion Kuwait Investment Authority (KIA) is ready to sell its 24.6 per cent stake in domestic telecommunications company Zain and is awaiting attractive offers from bidders as it seeks liquidity to finance the nation’s budget. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

CalPERS’ CEO and CIO performance on offsite agenda

The full board of administration and the executives of CalPERS are conducting a three-day offsite, entitled Defining Our Future Now, which includes a number of closed sessions regarding chief executive and chief investment officer performance and employment matters, in addition to open forums on a number of strategic investment decisions. mrec4inarticleinline Sponsored Content scnative1 scnative2

Clash of the titans: investors and managers at odds over alternatives regulation

A battle has broken out between investors and suppliers over the regulation of hedge fund and private equity managers, with opposing testimony given to the US Senate by the country’s largest pension fund, the $180.9 billion CalPERS, and a US-based venture capital firm. In this “Have Your Say” column we ask you whether you agree

Previous