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

UK’s NAPF conference focuses on three issues

The agenda at the United Kingdom’s National Association of Pension Funds (NAPF) annual shindig in Liverpool’s Echo Arena on the banks of the Mersey couldn’t have been broader. From early analysis of auto-enrolment, the biggest shake-up of the industry in a generation and just days old, to life expectancy, Britain’s role in the European Union,

Brussels ‘cooking up real estate shock’

The European Union is threatening to drive pension funds out of real estate investments, experts warn. That could be one of the undesirable results of plans to put pension funds under new risk regulations akin to the Solvency II requirements for the continent’s insurers. What most concerns John Forbes, a PriceWaterhouseCoopers real estate expert, is

Size and scalability up, fees down

The world’s largest asset managers should be using the advantages of their size and scalability to adjust their fee structures, according to Craig Baker, the global head of manager research at Towers Watson, which just released this year’s Pensions & Investments/Towers Watson World 500. “The advantage of large managers is [that] they could structure their

300 Club roots for stewardship over salesmanship

The 300 Club is a rare group that combines long-term thinking and asset management provision. Taking on an industry that is evolving from client-driven to product-driven, the 300 Club is proposing a fundamental mindset shift from short-term salesmanship to long-term stewardship. In this paper, chief investment officer of Kempen Capital Management in the Netherlands, Lars

Aligning asset owners and managers

Delegation is a fundamental obstacle to the alignment of asset-owner and asset-manager goals. However, Sebastien Pouget, professor of finance at the University of Toulouse, believes a combination of customised performance benchmarks and a dual short and long-term fee incentive can help overcome the problems of the principal/agent relationship. Pouget, who spoke at the recent United

Danish pension is gold

Denmark has blitzed the pension-system competition, being awarded the first Mercer Global Pension Index A grading. In the process, it has relegated the Dutch and Australian systems to second and third places, respectively, after four years. Mercer senior partner and report author, David Knox, says the reasons for awarding Denmark the top grade were clear.

Previous