Private Equity Funds of Funds - The Spread of Returns

by Hayley Wong

  • 10 Dec 2010
  • PE

Preqin’s Performance Analyst database shows 622 funds of funds with performance data. Private equity fund of funds vehicles are traditionally viewed as low-risk investments. This assertion can be tested by looking at the percentage point variations between the IRRs of individual funds of funds and their respective median benchmarks, thus providing a proxy for the level of risk involved with these vehicles.

The majority of fund of funds returns lie close to their respective median benchmarks, with over half (60%) of all funds of funds having net IRRs within +/-5% of their median benchmarks. More broadly, 87% of all funds of funds have net IRRS that fall within -10% to 9.9% median benchmarks. Looking further outside this interval, 7% of all funds of funds outperform their benchmarks by 10%. The high number of funds of funds that are performing close to their benchmarks and the small number of outliers demonstrates that fund of funds represents a relatively low-risk private equity strategy.

More information on private equity performance can be obtained through Preqin’s Performance Analyst service.

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