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Increasing Demand for Tech-Focused Funds among Private Equity Fund of Funds Managers

by Niamh Cahill

  • 30 Apr 2018
  • PE

As a result of continuing innovation within the industry, combined with year-on-year growth, private equity fund of funds managers are investing an increasing amount of capital in the technology sector. Although the technology sector has been a long-standing investment choice for many investors, the evolution of the fintech and cleantech industries has motivated a significant number of private equity fund of funds managers to invest in tech over the past year.

Interest in the technology sector among private equity fund of funds managers continues to grow each year. As shown in the chart below, since 2015 there has been a 23-percentage-point increase in the number of private equity funds of funds actively seeking technology-focused funds.

Currently, Preqin tracks 341 private equity fund of funds managers, of which a substantial majority (72%) have indicated a preference for investing in the technology space. Among those funds of funds searching for technology funds over the next 12 months, 44% are based in North America and a further 30% are located in Europe. In terms of the geographic focus of their investment, such investors are targeting North America (53%) and West Europe (47%). Outside of these, 33% of fund of funds managers are looking to invest in Asia-Pacific and a further 14% are seeking opportunities in emerging markets as part of their mandate over the next 12 months.

Due to the fast-growing and competitive nature of the technology sector, it is unsurprising that 82% of technology-focused managers are targeting both venture capital and growth vehicles over the coming year. This is followed by buyout (23%) and small percentages targeting distressed debt (7%), mezzanine (7%) and special situations (5%) funds.

There are currently 11 private equity funds of funds on the road targeting the technology industry, seeking an aggregate $1.7bn. Galdana Ventures II, managed by Altamar Private Equity, is the largest fund in market, targeting €350mn to invest in global-focused venture capital funds. Other large funds in market include Adveq Technology IX, the ninth in Schroder Adveq’s technology fund of funds series, and CreditEase Private Equity USD Fund of Funds II, both of which are targeting $250mn.

Overall, appetite from private equity fund of funds managers for the technology sector is on the rise, with the proportion of managers expressing an interest in the industry having grown significantly since 2015. Although the technology sector has amassed investment from funds of funds over a sustained period of time, it appears to be attracting more and more managers as time goes on. This has been led by the advances in the cleantech and fintech sectors, and driven by high-profile tech giants such as Amazon, Apple, Microsoft, Facebook and Alphabet.

 

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