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

‘Coherence’ key for defined contribution

As the world moves to defined contribution structures, many questions remain about its robustness, not the least of which is how defined contribution funds deliver adequacy.

Program related investment highs + lows

Program related investment is a growing passion for wealthy individuals behind foundations and endowments, but it is a growing source of concern for their chief investment officers.

Slow death for Japan’s pension funds

Pensions expert, Hidekazu Ishida, talks about the state of corporate pension funds in Japan – from where they’ve been to where they’re going – and discusses some popular investment strategies.

A look into the future of investing

The future of investing is in the creation of new wealth, not recycling claims on old wealth, according to the World Economic Forum’s Global Agenda Council on the Future of Investing.

Investment theory: good ‘in theory’

Investors should not rely on investment theory because the complex and connected risks in the real world cannot fully be accounted for, says Tim Unger, of Willis Towers Watson.

CALPERS’ chief navigates ‘perfect storm’

Outgoing CaIPERS’ CEO, Anne Stausboll, talks to Amanda White in an exclusive interview, about her passionate views on sustainability, simplifying the portfolio, and where improvements are needed.

Previous