IRR Funds vs Funds of funds
Hello,
I am looking for the differences from an LP point of view between investing in PE Fund vs investing in Fund of Fund.
Let's assume (purely hypothetical) that an LP had the choice to invest in a fund OR a fund of fund which have exactly the same simplified characteristics (again it's just theoretical):
- they only invest in one company (ie the fund invests in one company, the fund of fund invests in one fund which only invests in one company)
- the 2 possible investments have both the same starting date and end date.
What I try to do is to list all the differences that would still exist and result in different IRR.
Fees, Carried, etc.
More importantly I would like to know how they differ in terms of cash flow timeline (committment, draw downs, committments,..)
I have a feeling that Fund IRR> FOF IRR but I need the elements to support it.
Thanks!
I am not exactly sure what you are trying to get at, but its normally Fund of FundS, and so invests in multiple funds. There is no real point in creating a single fund, Fund of Fund, unless it was trying to attract investors that can't meat the minimum investment requirements and wanted to go in one fund... but even then, you would want some diversification in exchange for the FoF fees. Cash flow timeline would the the same, (they are both invested in the same underlying company), the only difference would be the extra layer of fees charged at the FoF level, that is only the case if they were investing across a few funds. I am not sure what you are trying get at, if you haven't explained what you are trying to find out properly or if you are confused etc. but I hope that helps. I am not really sure why you are interested in this completely hypothetical example that you are never likely to see in practice, is it for class or something?
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