There are currently 193 private equity fund of funds vehicles in market, demonstrating a 32% increase compared to H1 2017 (146). There has also been an increase in aggregate capital raised by such vehicles, from $28bn to $34bn; this marks the largest number of private equity funds of funds in market in the past five years, and the highest amount targeted since 2013. Funds of funds continue to represent an attractive investment solution for many LPs, especially due to the increasing number of institutional investors looking to enter the private equity universe.
Of the 30 private equity fund of funds vehicles that held a final close in H1 2018, the largest two are Harbourvest International Private Equity Partners VIII Partnership and ATP Private Equity Partners VI, which closed on $1.7bn and €800mn respectively. The former was raised by $50bn private equity fund of funds manager HarbourVest Partners, and seeks investments across Europe, Asia and emerging markets. The latter is managed by ATP Private Equity Partners, a €9.2bn private equity fund of funds manager, and primarily seeks North America- and Europe-focused buyout and venture capital vehicles.
Of the largest private equity fund of funds vehicles currently raising capital, Axiom Asia V and Cachette Venture Partners I both have a target size of $1bn, ranking third and fourth largest respectively. Axiom Asia V, managed by $3.6bn private equity fund of funds manager Axiom Asia Private Capital, invests across a diversified range of industries in buyout, growth and venture capital across the Asia-Pacific region. Cachette Venture Partners I is managed by Oakland-based private equity fund of funds manager Cachette Capital Management, and targets globally focused early-stage venture capital funds targeting consumer web and software industries.
Other notable private equity funds of funds in market include:
- Portfolio Advisors Private Equity Fund IX: with a target size of $900mn, the fund is managed by $24bn Connecticut-headquartered Portfolio Advisors. It seeks to invest in buyout, venture capital and special situations vehicles. As well as making primary commitments, it has the ability to make secondary purchases and direct co-investments.
- Access Capital Fund VII – Growth Buyout Europe: raised by €4bn Paris-based Access Capital Partners. With a target size of €750mn, the fund focuses on sustainable European growth-oriented small- and mid-market buyouts and special situations funds, through primary and secondary investments.
- GC Oriza Fund of Funds II: currently seeking CNY 5bn ($816mn), the fund focuses on early-stage venture capital vehicles across the Chinese market and is managed by Suzhou-headquartered fund of funds manager Oriza Holdings.
Despite the challenges faced by the fund of funds model over the years – primarily due to the double layer of management fees associated with it – fund of funds managers have been able to respond by adapting their business and investment approaches. By merging with or acquiring other firms as well as making increased use of alternative investment methods such as co-investments and separate accounts, and becoming more specialized, these managers have successfully created better opportunities for themselves.