Private Equity Fund of Funds

By: EconomyWatch   Date: 4 August 2009

About The Author

EconomyWatch

The core Content Team our economy, industry, investing and personal finance reference articles.

EconomyWatch, Content Team

 

  • Dot Div
  •      

Private equity fund of funds (FoF) are investment vehicles that pool capital from people to invest in several private equity funds. Through these funds, investors can create a highly-diversified portfolio of indirect investments in numerous companies from some or all of the categories of private equity. As of mid 2009, private equity fund of funds investments contributed more than 10% of the capital to private equity, such as venture capital and buyouts.

Who Should Opt for Private Equity Fund of Funds

 

Private equity fund of funds are the best option for people who:

  • Are interested in investing in private equity but are unsure on where to start

  • Want to develop their private equity investment program

People who invest in private equity fund of funds usually:

  • Tend to have a smaller asset base than that of direct partnership investors. Thus, they do not have access to superior performing direct partnerships

  • Have limited resources to manage this segment of their portfolio

Benefits of Private Equity Fund of Funds

 

Benefits of private equity fund of funds are:

  • They are less risky, since they invest capital in a maximum of twenty direct investments

  • As they invest in diversified private equity asset classes, they help to significantly improve the risk/reward profile of a portfolio

  • They provide access to high-quality funds that are managed by a professional team

  • They are cost effective

Disadvantages of Private Equity Fund of Funds
 

Disadvantages of private equity fund of funds are:

  • The market is opaque and illiquid

  • There is limited access to performance figures

  • Place additional burden of asset management fees. This can reduce an investor's profits and total returns below what could be achieved through mutual funds or ETFs.


  • Dot Div
  •      

Most Popular in Exchange Traded Funds

Related Links
blog comments powered by Disqus