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

Holland’s hybrid: defined ambition

Jan Tamerus, actuary director at PGGM, was instrumental in developing the new Dutch pension defined-ambition structure. Back in 2006, he was involved in looking at the sustainability of the defined benefit system and in concluding it was not in fact sustainable, the idea of defined ambition evolved. One of the key reasons for not going

Is the Great Rotation passing pension funds by?

The prospect of a seismic shift from bond to equity investments looks set to pass most of the world’s pension funds by, argue experts. The concept of a ‘Great Rotation’ rose to prominence following its use by Bank of America Merrill Lynch in October. It argued in a note that “the era of bond outperformance

APG’s Wuijster refines asset management

APG, which manages €314 billion ($480 billion), has always been innovative. Ronald Wuijster earned a reputation as somewhat of a pension rockstar when he introduced the idea of intellectual property rights as an asset class and bought the music rights to a number of high profile musicians from the contemporary to classical. That investment, which

Parrado’s guide to building sovereign wealth funds

They may be on opposite sides of the Earth, but Chile in Latin America and Central Asia’s sparsely populated Mongolia share more than a few similarities. Both boast some of the biggest copper deposits in the world and now Mongolia has turned to Chile for advice on how best to steward income from its forecast

Partnership creates global events network

Conexus Financial, the financial services media and events company and publisher of top1000funds.com, has formed a partnership with the New York-based World Pension Forum (WPF) to create a major international conference business catering to the world’s largest institutional investors. Conexus will apply its events management expertise and experience to enhance existing WPF events – three

Embracing board diversity at HESTA

The Australian fund, HESTA Superannuation stands out among its peer of industry funds for a few reasons, not the least of which is its predominantly female (80 per cent) member base, but it’s also one that has seen notable growth in the past 20 years. From a fiduciary perspective, the fund has gone from less than

Previous