Funds of funds provide investors with the means of gaining exposure to a range of private equity fund types, geographies and industries. With the number of vehicles closed having decreased year on year since 2012 and more experienced investors active in the market, the question stands as to what private equity fund of funds managers are doing to attract investor capital in today’s fundraising environment.
One key aspect of creating a fund’s strategy is deciding which industries to invest capital into, as this can play an integral role in gaining investor attention. As the chart above shows, disregarding funds with a diversified interest, over the past 10 years the highest proportion (53%) of private equity funds of funds closed have allocated their capital to investing, at least partially, in the technology sector. Due to the rapid development and innovation associated with investments in this sector, fund of funds managers have looked favourably on investing in this space. Similarly when looking at the fund of funds vehicles currently in market, 44% have at least a partial focus on technology opportunities, the most of any industry.
Since 2005, the energy sector has proven to be the next most attractive industry to invest in for funds of funds. This is mirrored for the funds of funds currently raising capital too, with 40% of vehicles in market looking to target the sector, at least partially. As oil prices remain low, fund managers may be attracted by undervalued assets in the energy sector, explaining the high percentage of funds in market targeting the industry.
Twenty-eight percent of the funds of funds vehicles currently in market have at least a partial focus on the media sector, which includes television, radio broadcasting and programming, and music production and distribution. This is a large increase when compared to the 7% of funds of funds closed in the last decade with the same preferences, highlighting an increase in favourability for the sector among fund of funds managers.
The chart illustrates how fund of funds managers are altering the ways in which they invest in order to attract investors. By allocating capital to certain industries, the firms are providing a more tailored service for investors that are seeking exposure to the asset class.