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Private Equity Fund of Funds Managers’ Interest in First-Time Funds – March 2014

by Francesca Braganza

  • 07 Mar 2014
  • PE

First-time funds have historically been approached with caution by some private equity investors, due to the increased risk that accompanies not investing with established and experienced players in the asset class. First-time fund managers often do not have track-records, which can be off-putting to LPs that require security in their investment portfolios and therefore seek lower-risk opportunities in an already high-risk investment environment. 

There is a split in opinion between investors with regard to their approach to investing in first-time fund managers, as demonstrated in Preqin’s Investor Intelligence database. Private equity fund of funds managers are one group of investors that collectively hold differing points of views, and a group that contribute a significant amount of capital to the asset class on an annual basis. There are currently 291 private equity fund of funds managers actively investing in private equity opportunities, the majority of which (69%) would consider investing in new and emerging managers. A further 17% of the 291 investors would consider doing so if the fund is being managed by a spin-off team, i.e. a group of fund managers that may not have previously worked together, but have individual experience in investing. 

Ardian is one of the largest private equity fund of funds managers which considers working with first-time fund managers. The $36bn France-based  firm invests in a wide range of fund types and geographies, and typically looks to commit at least €1bn to the asset class on an annual basis. 

Goldman Sachs AIMS Private Equity is an example of a fund of funds manager that would only invest in a first-time fund if it is managed by a spin-off team. The firm has $41bn in private equity assets under management, and has historically been an active player and contributor to the private equity market. Goldman Sachs AIMS Private Equity has exposure to a range of fund types and geographies, with the majority of its portfolio consisting of US-focused buyout funds.

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