First-time funds are often looked upon as involving more risk and uncertainty than investing with more experienced fund managers in the private equity space. The lack of track record of a first-time fund manager will cause investors to approach with some caution – an attitude that Preqin have been actively logging over time in order to gauge the industry’s general outlook towards investments in emerging managers. This blog will specifically look into the sentiments of private equity fund of fund managers towards investing in first-time fund managers.
Preqin's Investor Intelligence database reveals a split in opinion, with attitudes ranging from definitely will invest in first-time funds, considering investment into first-time funds, only investing in spin offs and not investing in first-time funds at all. The data indicates that the majority (53%) of private equity fund of fund managers would invest in new and emerging managers. Fourteen percent of private equity fund of fund managers would consider the opportunity, 17% of them would be willing to invest in spin offs and 16% would not invest in any first-time fund manager at all.
An example of a private equity fund of funds manager that would invest in spin offs is König & Cie. The German firm has a preference for teams with a track record from previous experiences, and also GPs raising their second, third or fourth fund. As of January 2013, König & Cie’s latest fund of fund vehicle was fully committed and it was not looking to make any new investments over the next 12 months.
Dahlia Partners is one of the 134 private equity fund of funds managers that would invest in first-time funds. Paris-based Dahlia Partners’ strategy is traditionally diversified, with a broad geographic and industry focus. The firm currently manages €650 million, with the majority invested on the primary market (68%) but also allocate a share to the private equity secondary market and co-investment opportunities.