Survey of how private equity fund of funds managers have responded to the financial downturn

by Hanna Ohlsson

  • 17 Dec 2009
  • PE

Funds of funds form an important part of the private equity investor universe as suppliers of capital to direct funds. They also provide less experienced investors, or those with less capital available to commit, with a method of accessing the asset class and are, in addition, an important diversification tool for more experienced investors that are seeking to penetrate new industries or geographies.

We surveyed 78 fund of funds managers worldwide in order to examine how their investments have been affected by the financial crisis, what their concerns are with regards to the private equity market, and also what they consider to be the most interesting opportunities going forwards. A significant 57% of the respondents that previously had allocations to the secondary market are investing in more secondary market opportunities as a consequence of the global financial downturn, looking to take advantage of the discounts at which some institutional investors may be forced to sell their fund stakes. The same proportion, 57%, of respondents that had previously invested in mega funds stated that they are now investing in fewer funds of this type than before the crisis. 12% of all respondents have started targeting other fund types, while 13% have altered their investment strategies by targeting different geographies than they had previously.

Our survey also asked fund of funds managers which strategies they feel currently present the most attractive opportunities. 81% of respondents see opportunities in small to mid-market buyout funds, with 56% and 41% believing that distressed private equity funds and expansion funds respectively are currently appealing. A quarter of fund of funds managers see attractive investment opportunities in both mezzanine and venture capital funds, while smaller proportions of the responding managers saw interesting opportunities in infrastructure, real estate and secondaries funds. Finally, in contrast to the large proportion of fund of funds managers attracted to small to mid-market buyout funds, none of the managers surveyed saw large and mega buyout funds as good investment opportunities at this time.

More information on fund of funds managers’ views on private equity investing in the current market can be found in the 2010 Preqin Private Equity Fund of Funds Review. The Review also includes profiles of 230 active fund of funds managers, detailing their fundraising activities, investment preferences, sample investments and the key contacts at each institution.

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