Why do firms that are essentially FOFs like Harbourvest and Adams Street still exist? At this point, aren't nearly all insitutional investors investing directly with PE/HFs and not using FOFs? I simiarly don't understand the GP stakes trend. Curious if anyone has insight or thoughts.
| +43 | Lateraling at senior associate / VP level | 15 | 11h |
| +27 | Imposter Syndrome: PE to Publics | 4 | 3d |
| +26 | Ares buying LGP...now what? | 8 | 2d |
| +19 | Do PE VPs Always Have An Associate Under Them? | 12 | 2d |
| +17 | GTCR vs BDT MSD vs MDP | 16 | 1d |
| +16 | Hours at MF Infra Funds in London | 2 | 19h |
| +14 | Setting the right LBO entry multiple without information | 3 | 6d |
| MBA to EM Infra Investing? | 3 | 3d | |
| +11 | Committing to CD&R? | 6 | 8h |
| +11 | London Version: PE Check-in on Attrition, Promotions and State of Play | 6 | 1d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Because sponsors don’t want to have the reporting obligations of 10,000 individuals. And it’s a fairly administratively and time consuming job to pick good managers. These funds have decades of experience, relationships and data on PE sponsors so pensions, endowments, foundations, family offices, etc outsource their private markets portfolio to them.
Should add, starting a FoF today would be incredibly hard because the advantage in these businesses is scale. The proprietary data these funds have is their edge.
The only new fund of funds you see these days are ones targeting nicheir strategies like independent sponsors or first time funds as most of the established players don’t do those as often.
Certain of these FOFs have performed 1st or 2nd quartile, net of their own fees. Some have underperformed. Value add is not investing in latest $20b MF raise, its manager selection in lower MM PE with niche strategy, access to unique first time funds / spinouts, more of a steady hand with coinvest underwriting (alleviates liability from pension). Also can be a core / satellite approach, where institutional investor invests in a few of their strategies and then invests in a FoF for diversification ($50m is spread out to 10-12 different funds vs concentrated in 1 strat). Also FoF of scale are able to negotiate better terms relative to smaller institutional investors that can't write $100m checks.
Because if you only have 100m to invest in PE you can’t possibly build a diversified portfolio or get access to managers below the mega cap names
venture is a ridiculously small market. firms like adams street and harbourvest are some of the only ways in the world to get access to top tier venture gp’s, although there’s a double fee. In PE, access isn’t the differentiatior, but more so being able to identify replicable middle market/lmm strategies that have larger upside potential than large MF’s.
They exist so direct PE shops can sell their unsellable assets (into continuation vehicles). This is all done under the guise of "providing LPs the opportunity to capitalize on additional compounding of a trophy asset"
Markowitz spoke about this
At first glance, they do appear to be an added fee layer but do make sense for the right group of LPs.
For example, any lean and relatively unsophisticated capital provider (often time endowments, family offices, state pensions with very small investment teams) are either i) unable to allocate all of their capital effectively (do not have the know how, experience, ability to travel the world to target GPs, ii) unable to access top decile GPs (firms you mentioned have +30 year relationships with the best GPs in the world, Joe Schmo off the street isn't able to access even with $10M, $50M, $100M in their pocket), and iii) these FoFs often are providing large, more fee efficient SMAs to their big clients and like other commenters have already mentioned, generating +20% net / 2x MOICs which is pretty impressive over the long run.
Additionally, a similar argument like "why do so many PE shops exist that underperform" could be made and the answer is similar in that a decent chunk do really well for their LPs. Same thing goes for FoFs.
Tempore ratione voluptatibus quo et. Quae aut non aut autem et. Veniam numquam quisquam necessitatibus ut at.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...