Thirty-six private equity funds of funds held final closes in the first half of 2015, according to Preqin’s Funds in Market product. This figure is down by 25% from H1 in the two preceding years, with 49 final closes taking place during that period in 2014 and 48 vehicles completing their fundraising cycles in the first six months of 2013. However, in terms of the amount of capital raised, the difference is less significant; $9.2bn was raised in H1 2015, compared with $9.3bn in H1 2014 and $9.5bn in H1 2013.
According to these figures, investor appetite for funds of funds remains relatively stable, with LPs still drawn to the benefits of portfolio diversification and smaller commitment sizes. Fund of funds managers serve a function as the link between new or small investors and GPs, and have the necessary expertise and experience to offer LPs exposure to niche strategies.
The chart above illustrates that private equity fund of funds managers closed over two-thirds of their fund of funds vehicles on or above target in H1 2015. By contrast, only 55% of funds closed on or above target in H1 2014 and less than half of vehicles that completed fundraising in H1 2013 reached their targets. This may reflect a GP base that is keenly aware of the issues limiting investment into funds of funds and tempering target sizes accordingly.
Despite the expensive double layer of fees characteristic of funds of funds, the fundraising figures for H1 2015 demonstrate that a substantial volume of capital is still being committed to commingled vehicles, and funds of funds continue to occupy a valuable position within the asset class for both LPs and GPs.