Private Equity Fund of Funds’ Appetite for Mezzanine Funds – October 2015

by Andrew White

  • 01 Oct 2015
  • PE

Private equity funds of funds offer investors the opportunity to gain exposure to a range of vehicles via one capital commitment – a key motivation behind LPs investing in such funds. According to Preqin’s Investor Intelligence online service, mezzanine funds are prevalent targets for fund of funds managers seeking investment opportunities. Of the 304 active private equity fund of funds managers currently tracked by Preqin, over a third (115) have stated an investment preference for the fund type.

Since 2010, 589 private equity funds of funds have held a final close, collecting an aggregate of $131bn. Of these vehicles, just 70 (12%) have stated mezzanine as a fund type preference, representing $33bn (25%) of the total capital raised between 2010 and 2015 YTD. The above chart illustrates how the number of funds of funds closed has fluctuated since the turn of the decade, as well as the proportion of which have a preference for making investments in mezzanine vehicles.

While mezzanine may not attract the same volume of fund of funds investors as the more dominant private equity fund strategies such as buyout, growth and venture capital, it provides an appealing entry point for investors looking to commit to debt strategies. The above chart shows how mezzanine-focused funds make up just a slim number of the fund of funds vehicles closed this year; just six funds of funds with a preference for mezzanine have closed so far in 2015. Both fund of funds and mezzanine fundraising has slipped off in recent years, a likely factor behind the low number of such vehicles.

Preqin’s Funds in Market online service currently tracks 144 funds of funds that are looking to raise $28bn in aggregate capital, 11% of which include mezzanine as a fund type preference. Despite a relatively low percentage of funds in market targeting mezzanine, this figure demonstrates that funds of funds will continue to commit to mezzanine at relatively consistent levels over the coming years.

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