Private equity funds of funds offer investors an opportunity to gain exposure to niche industries, fund strategies and geographies that they may not have had before. If an LP lacks experience in investing in a certain sector then the investor can utilize the expertise of a fund of funds manager to administer capital. Geographic regions falling under the umbrella of ‘emerging markets’ have long captured the interest of the private equity investor community, with an abundance of opportunities in the developing nations to be taken up, offering potentially high returns – though with correspondingly high levels of risk.
Preqin’s Funds in Market online service currently tracks 166 private equity fund of funds vehicles in market, 44 of which include exposure to emerging markets in their investment strategies. These funds are seeking an aggregate $10bn in capital commitments from investors, and have so far reached over £3bn towards this target.
Of these 44 vehicles, GC Oriza Fund of Funds is seeking the largest amount of capital, with a target of CNY 5bn (approximately $772mn). The fund, which is being raised by China-based Oriza Holdings, focuses on China-focused venture capital vehicles, and hopes to invest in 20 to 30 funds in its lifetime. Within China, GC Oriza Fund of Funds will seek exposure to small to mid-sized businesses in emerging industries, including the information technology, internet and consumer sectors. So far, the fund has raised a total of CNY 3bn ($449mn), with hopes to complete fundraising in the next couple of years.
Northgate V is seeking the second highest volume of capital from investors in this sample of private equity fund of funds; the vehicle has a target of $750mn, with a hard cap target of $950mn. It is being raised by US fund of funds manager Northgate Capital, and includes investing in emerging markets as part of its investment strategy. Northgate V focuses on venture capital and growth vehicles within emerging economies, and buyout, growth and turnaround funds in developed markets, predominantly in the US. In addition to making primary fund commitments, the fund will seek exposure to these opportunities through secondary market transactions and co-investment opportunities.