THE GuiDE To FunD oF FunDs MAnAGERs

Third Edition Practical intelligence on vital trends and strategies

Edited by

Kelly DePonte Probitas Partners

Published in December 2011 by PEi second Floor sycamore House sycamore street London EC1Y 0sG united Kingdom Telephone: +44 (0)20 7566 5444 www.peimedia.com 2011 PEI isBn 978-1-908783-01-1

This publication is not included in the CLA Licence so you must not copy any portion of it without the permission of the publisher. All rights reserved. No parts of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means including electronic, mechanical, photocopy, recording or otherwise, without written permission of the publisher. The views and opinions expressed in the book are solely those of the authors and need not reect those of their employing institutions. Although every reasonable effort has been made to ensure the accuracy of this publication, the publisher accepts no responsibility for any errors or omissions within this publication or for any expense or other loss alleged to have arisen in any way in connection with a readers use of this publication.

PEI editor: Helen Lewer Production editor: William Walshe Printed in the UK by: Hobbs the Printers (www.hobbs.uk.com)

Contents

Figures and tables About the editor Introduction from the editor Section I: In-depth chapters 1 Funds of funds a brief history
By Kelly DePonte, Probitas Partners
Denition and rationale At the creation: separate accounts The late 1990s explosion: new funds and new structures The last decade Summary

vii ix xi

3 3 4 5 6 10 13

Why invest in funds of funds? Where does fund of funds investing t into the private equity investment landscape? What is a fund of funds? Attractions of a fund of funds Why is the cash-ow prole of a fund of funds important? What should investors look for in a private equity fund of funds manager?

By Stewart Hay, Richard Chapman and Andrzej Plichta, SL Capital Partners LLP

Why invest via a fund of funds?

14 16 17 18 19 20 23 23 23 30 30 33 33

Private equity fund of funds investment strategy

Introduction Investment strategy and process Organisational stability Conclusion

By Hanneke Smits and Kathy Wanner, Adams Street Partners

Legal issues on structuring a private equity fund of funds

By Solomon Wifa, OMelveny & Myers LLP
Introduction

iii

Contents

Considerations that inuence the choice of a fund of funds structure Common fund of funds structures Regulatory issues Principal terms and conditions Common US tax and regulatory issues

33 34 38 40 41

The growing importance of new and next generation managers in private equity
Introduction Historical strategy of PE investing Transformation of the PE industry demands new approach Seeking alpha through new and next generation managers The art of selecting new and next generation managers Conclusion

By Kelvin Liu, Invesco Private Capital

47 47 47 48 51 52 52 55 55 56 57 59 60 60

Private equity separate account investment vehicles

Introduction Evolution of outsourced investing The return of separate accounts Focused separate accounts versus allocated separate accounts Key issues for investors Summary

By Kelly DePonte, Probitas Partners

Co-investments in funds of funds and separate accounts

Background History of the co-investment process Current state of co-investment Benets to the LP Benets to the equity sponsor The co-investment process Sourcing Myths about co-investing Success factors in co-investing The future of co-investing

By Brian Gallagher, Twin Bridge Capital Partners

63
63 63 63 64 65 65 66 68 69 69 71 71 72 73 75 76 77

Regional focus: developments in Asian emerging markets

Current global trends pose challenges for funds of funds, but not in Asia Asia investors must allocate Asia-focused fund of funds landscape Why do investors prefer the fund of funds route to going direct in Asia? Similarities and differences between Asia-focused funds of funds and the rest of the industry Understanding the different private equity models deployed

By Veronica John and E. Brooke Whitaker, Serasi Capital

iv

Contents

What are the prospects for Asian Funds? Conclusion

78 79

Section II: From the Private Equity International archive Private Equity International coverage on funds of funds
Standing out from the crowd Dont be a JAFOF Survival of the ttest Same rules, different concerns Private equity is going bespoke Albert: LPs will ock to established FoFs News analysis: The FoF phenomenon 83 83 87 89 92 95 98 100

Section III: The survey Current trends in the fund of funds market: A survey of practitioners
Prole of respondents Sectors and geographies of interest Secondaries and co-investments Terms and conditions Greatest fears Summary 105 105 108 114 114 115 116

Section IV: The directory A comprehensive directory of fund of funds practitioners and advisers About PEI
121 216

Figures and tables

Figures

Figure 1.1: Global commitments to funds of funds Figure 2.1: Pooled IRR for European buyouts, as at December 31, 2010 Figure 2.2: Structure of a fund of funds Figure 2.3: Example cash-ow of a fund of funds Figure 3.1: Market assessment methodology Figure 3.2: Subclass assessment by market Figure 5.1: US venture capital industry assets under management Figure 5.2: US buyout & mezzanine industry assets under management Figure 5.3: Average debt/EBITDA large-cap US leveraged buyouts Figure 6.1: Global private equity raised per annum (19912011) Figure 7.1: Sample net cash-ow by year traditional funds of funds versus fund of funds with co-investment Figure 7.2: The co-investment process

5 14 18 19 26 27 48 49 49 56

64 66

Survey gures

Figure 1: Figure 2: Figure 3: Figure 4:

Location of rms headquarters Number of years active in private equity investing Strategies offered by funds of funds Targeted amount of private equity allocations across all funds for 2012 (in US Dollars) Target sectors for investment for 2012

106 106 107

107 108

Figure 5:

vii

Figures and tables

Figure 6:

Target sectors for investment in 2012 North American respondents only Most attractive geographical focus for 2012 Most attractive European investment regions for European-focused funds Most attractive markets in Asia Most attractive strategies/sectors in the US mid-market Most attractive sectors/stages in venture capital Most attractive emerging markets Approach to secondary markets Directs and co-investments activity Attitude to the ILPA Private Equity Principles The most important issues regarding terms/structures of a fund Fund of funds managers greatest fears about the current private equity market

109 110

Figure 7: Figure 8:

110 111 111 112 113 113 114 115 115

Figure 9: Figure 10: Figure 11: Figure 12: Figure 13: Figure 14: Figure 15: Figure 16: Figure 17:

116

Tables

Table 1.1: Table 1.2: Table 1.3:

Ten largest private fund of funds vehicles, 2011 The ve largest publicly traded fund of funds vehicles, 2011 Private equity and funds of funds: a timeline

7 8 10

viii

About the editor

Kelly DePonte is the head of research and due diligence at Probitas Partners, a leading global provider of integrated, alternative investment solutions including fund placement and portfolio management services. Kelly is based in the rms San Francisco ofce and has over 30 years experience in the industry. Before joining Probitas Partners, Kelly was chief operating ofcer and a managing director at Pacic Corporate Group, a private equity consultancy rm, where he also directed the partnership investment programme. Before that he spent several years with First Interstate Bank where he most recently oversaw its private equity activity and interest rate swap activity. Kelly is also a member of the Editorial Advisory Board of PEIs quarterly journal The Review of Private Equity. Kelly received an MBA from UCLA and a BA in Communications from Stanford University.

ix

Introduction from the editor

When the second edition of A Guide to Private Equity Fund of Funds Managers was published in early 2008 we were unknowingly at the beginning of the Great Financial Crisis (GFC). That crisis dramatically affected the private equity industry and the fund of funds market as well. It accelerated changes that have led to an increased set of targeted product offerings and separate account vehicles taking their place alongside the wellestablished globally diversied funds that originally started out in the market. While the fundamentals of funds of funds have not radically changed, the market has become more complex and in the coming months the industry will also have to comprehend the raft of regulatory changes emanating from Europe and the US, and assess the impact it might have. The new market dynamics are reected in this third edition of the guide, which includes an entirely new chapter on the growing importance of new and next generation managers in addition to a number of fully revised and updated chapters from the previous edition. It also includes a new survey of fund of funds managers, which analyses current trends in the market and highlights the market segments, investment strategies and geographic areas that are of most interest to practitioners as well as the challenges they face in doing their business. There is also a comprehensive directory containing the proles of over 190 fund of funds managers. We have been fortunate to attract a group of distinguished industry practitioners to author the chapters of this book. Most of the material here has been written by individuals who have devoted their spare time, in spite of busy professional schedules, to share their knowledge of the market. This book would not be possible without their contributions and the editors wish to express their profound thanks to all the authors. Kelly DePonte

xi

Funds of funds a brief history

By Kelly DePonte, Probitas Partners

Funds of funds are such a xture on the current private equity landscape that it is difcult to remember they are a fairly recent phenomenon. Though institutional private equity vehicles trace their roots back to the 1940s (see the timeline in Table 1.3), the private equity market remained too shallow to support funds of funds vehicles until the 1970s. Large investment vehicles are creatures of the last 12 years, and this period of growth has seen a tremendous amount of change and a proliferation of strategies to deal with that change.

Denition and rationale

Even with an investment product as ubiquitous as a fund of funds, it is useful to go back to rst principles and dene exactly what is meant by a fund of funds vehicle. According to VCExperts.com, a fund of funds is: A fund set up to distribute investments among a selection of private equity fund managers, who in turn invest the capital directly. Fund of funds are specialist private equity investors and have existing relationships with rms. They may be able to provide investors with a route to investing in particular funds that would otherwise be closed to them. Investing in funds of funds can also help spread the risk of investing in private equity because they invest the capital in a variety of funds.1 The key reasons investors look to funds of funds are embedded in that denition:

Specialist expertise. The due diligence process for investing in private equity funds is both complex and arcane. (Private Equity International publishes a book entitled The Guide to Private Equity Fund Investment Due Diligence, which details the complexities of fund manager selection.) Successful fund of funds managers have developed proven expertise in fund selection expertise that is difcult for smaller investors or new market entrants to replicate quickly. Access. Successful fund of funds managers have relationships with primary managers who have been successful in the past, and who may be difcult for new investors to access, especially in the venture capital market. Diversication. Given that many private equity funds have minimum commitments of $5 million to $25 million, it is often difcult for small investors to build diversied portfolios that offer protection in what is a volatile asset class. The vast majority of funds of funds are multi-manager vehicles that offer smaller investors managed diversication.
VCExperts.com at: http://vcexperts.com/encyclopedia/glossary/227

section i: in-depth chapters

At the creation: separate accounts

The rst fund of funds was formed in the 1970s as the number of primary fund offerings increased, and fund selection became more of an issue. However, the fund of funds market as a whole did not become signicant until the 1990s when the primary market signicantly expanded (see Figure 1.1). What is more difcult to track, however, are separate accounts. Commitments to separate accounts are not consistently included in these numbers, and separate accounts themselves were more prevalent early on in the market. A separate account is an agreement between a professional third-party manager and an institutional investor crafted to a specic investment mandate. It can be documented by a simple contract between the parties for a xed duration, or it can take the form of a fully structured fund of funds vehicle that has a single investor. Even when structured as a formal fund of funds, there is little information publicly available on separate accounts as they are agreements only between the two parties and generally include condentiality provisions. Many of the rst fund of funds providers, including Adams Street (previously Brinson) and HarbourVest, actively provided separate accounts to large institutional investors early in their careers. For these large investors, separate accounts were a way to tap into third-party expertise and leverage internal staff at a point where private equity was just beginning to develop as a market experienced professionals with a background in fund due diligence were very rare. For the separate account providers, relationships with large institutional investors allowed them to quickly increase assets under management, even though the fees on separate accounts were usually lower than those on a multi-party fund of funds because of the pricing power that large investors commanded. It was just this pricing dynamic combined with an increase in private equity investments by a number of new market entrants that led to a decline in the use of separate accounts and the beginnings of an increase both in the number of funds of funds and the amount of money committed to them in the early 1990s. This was growth from an admittedly small base it wasnt until 1995 that more than a billion dollars was raised for funds of funds in a single year, and it wasnt until 1997 that more than $5 billion was raised. The expansion of multi-investor funds of funds provided several advantages to fund managers:

Pricing. With multi-investor funds of funds, negotiating power shifted from the investor to the fund manager. The wholesale discounts available to large investors were not usually available on multi-investor funds. Assets under management.By tapping into a number of smaller investors simultaneously, fund managers were able to build more quickly their base of assets under management. When combined with the better pricing margin, this led to increased protability. Efciency. For a fund of funds manager, managing a large pool of money with a single investment mandate is more efcient than managing multiple, uniquely designed separate accounts at the same time. With a single global mandate, a fund of funds manager can deploy more capital into fewer funds, minimising time spent on due diligence, making larger commitments with each individual underlying fund and developing stronger relationships with general partners (GP) during the process.

Why invest via a fund of funds?

By Stewart Hay, Richard Chapman and Andrzej Plichta, SL Capital Partners LLP

For an investor seeking diversication across a variety of asset classes, private equity may only represent 2 to 5 percent of an investment portfolio. However, with returns from private equity potentially in the 13 to 18 percent range1, this asset class has the potential to represent a signicant portion of the outperformance of an overall investment portfolio. Typical investors include pension schemes, sovereign wealth funds, foundations and endowments, nancial institutions, family ofces and high net worth individuals. In the US, where acceptance of the asset class is greater, some investors, generally foundations and endowments, now have exposure levels to alternative assets that account for a signicant portion of their portfolios. For example, the Washington State Investment Board (that is the pension scheme for the state of Washington) in the US specically targets private equity as 25 percent of their portfolio while the average allocation to private equity of pension plans stands at 5.5 percent.2 As you might expect though, it is not quite as straightforward as simply making an allocation to the asset class then sitting back and making high returns. There is a much wider dispersion of returns between the best managers and average managers in private equity than is seen in other asset classes.3 Data from Thomson ONE is very instructive in this regard. Figure 2.1 shows return information for European buyout managers over various time periods. Focusing on the ten-year internal rates of return, we see that the median return over this period was 9.1 percent, while the top-quartile break point was 19.4 percent, an outperformance of 10.3 percent over the median, illustrating the crucial importance of selecting top-quartile managers. This point is highlighted even more by the bottom-quartile benchmark of -14.4 percent over the same ten-year horizon, a huge 23.5 percent below the median (return numbers in the US market are similar to these). These statistics drive home the point that unlike the situation in publicly traded securities, where sector allocation can drive returns, manager selection is absolutely critical to the success of any private equity investment strategy.
1 Thomson ONE state that the pooled average ten year buyout return for top-quartile funds in Europe is 19.4 percent. A fund of funds would expect to be able to use its expertise to exceed the pooled median IRR for all funds in this category of 9.1 percent. 2 3

Preqin, (February 2011), Public Pension Plans and Alternative Assets. Thomson ONE (to December 31, 2010, sourced October 31, 2011).

13

section i: in-depth chapters

Figure 2.1: Pooled iRR for European buyouts, as at December 31, 2010
40 30 20 Pooled IRR (%) 10 0 -10 -20 5 years 10 years 15 years Top quartile All buyouts Bottom quartile

Source: Thomson ONE, as at December 31, 2010 (sourced at October 3, 2011).

An additional attraction that private equity can offer besides the potential for high returns is the signicant diversication benets.4 A number of studies have shown that historically long-term private equity returns have not been correlated closely with returns from traditional asset classes. This means private equity can help to smooth out the return of a balanced portfolio. Furthermore, it provides greater access to the real economy than the stock markets where diversication is often limited to larger rms in the more established industries.

Why invest in funds of funds?

When choosing to invest directly into private equity deals or funds there are many diverse capabilities and resources required in order to be able to successfully participate. A few of these are summarised below.

Skills

The skills required to invest in private equity are signicantly different from those needed to invest in the listed markets. The lack of a public marketplace means purchases must be privately negotiated with the seller of the company. As the company is privately held, there is generally limited information available from resources such as the internet, Reuters and Bloomberg. As such, the only way to nd out information about private companies is to go out and visit them, review all available internal and external information and meet with the management of that company. Investing in private equity is certainly not something that can be done sitting behind a desk. As a result, to make such an informed decision and generate the highest returns, the process of investing in private equity is far more labour-intensive than investing in listed
4

Faulds, Graeme, (2002), An Exploration of the Issues Involved in Making an Allocation to Private Equity.

14

5
Introduction

The growing importance of new and next generation managers in private equity
By Kelvin Liu, Invesco Private Capital

Over the last decade, there has been growing interest among institutional investors in committing to private equity funds managed by new and next generation (N&NG) managers where fund managers are raising their rst, second or third institutional quality fund. Large public institutions, such as California Public Employees Retirement System (CalPERS) and California State Teachers Retirement System (CalSTRS), have set up and continue to support programmes dedicated to identifying these rising stars of the future. This exemplies the perspective of some of the most sophisticated investors that the traditional way of investing only in proven managers may not be adequate. Without continual rejuvenation of their private equity (PE) programme, institutional investors may miss capturing the most promising private equity returns going forward. Consequently, many institutional investors increasingly believe that building a core portfolio of premier established names and supplementing it with a group of promising N&NG managers is likely to be an effective portfolio construction strategy, adding diversication and opportunistic elements with the potential to strengthen risk-adjusted returns over the long run. However, the organisational structure of many nancial institutions, both large and small, may constrain their ability to address these opportunities effectively. Large institutions often nd it difcult to commit the necessary resources to consider smaller commitments, maintain the enhanced monitoring required and conduct the specialised diligence to identify the truly deserving N&NG managers. On the other hand, smaller institutions lack both the internal resources and the capital needed to achieve a well-diversied programme to mitigate risk. This is where funds of funds and separate account managers are able to play an important role in helping institutional investors achieve their return objectives by providing dedicated resources and expertise to create a well-diversied portfolio of promising N&NG managers. Indeed, over the last decade, several funds of funds and separate account managers have offered specialised products to address this market specically.

Historical strategy of PE investing

Historically, institutional investors often sought solace through investing with brand name PE managers that could tout top-quartile track records. Investors would continue to back them, fund after fund, or risk losing access to their later funds. Agency Theory might have played a role in this Buy-IBM mentality. This strategy might have worked well for some investors in the early and mid-1990s when the universe of PE managers was small and there were only a handful of rms with proven track records. However, while we agree that some high-quality fund managers have developed a set of distinctive 47

section i: in-depth chapters

capabilities1 and reputations, the general application of this rule may not be effective in capturing the best PE returns going forward, especially given the changes and gradual maturing of the PE industry over the last decade.

Transformation of the PE industry demands new approach

The static strategy of solely backing brand name funds may no longer fully capture the strongest risk-adjusted returns due to the transformation of the industry that has taken place over the last decade. Venture capital saw its assets under management (AUM) grow over fourfold from under $45 billion in 1996 to $187 billion by 2006.2 With such rapid capital injection, individual venture funds grew larger in size and raised capital at a faster pace, while many expanded into strategies in which they had little or no domain expertise.
Figure 5.1: us venture capital industry assets under management
200

150

$ billion

100

50

0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Years
Source: Thomson Reuters. Invested vs. Uninvested Capital and Cash-Flow Summary Reports, venture only, as of December 31, 2010.

The buyout industry has also experienced explosive growth. The industrys AUM increased by a similar magnitude from $113 billion in 1996 to over $600 billion in 2006.3 In fact, the rapid growth of the industry did not abate until the onset of the 2008 credit crisis. With cheap and readily available credit, buyout funds not only grew larger in size, they also leveraged their portfolio companies to unprecedented levels. The average debt-to-EBITDA (earnings before interest, taxes, depreciation and amortisation) ratio peaked at 6.2x in 2007.4 This growth in leverage was reversed twice
1 2

BCG & IESE Business School. (February 2008). The Advantage of Persistence.

Thomson Reuters. Invested vs. Uninvested Capital and Cash-Flow Summary Reports, venture only, as at December 31, 2010.
3 Thomson Reuters. Invested vs. Uninvested Capital and Cash-Flow Summary Reports, buyouts and other private equity only, as at December 31, 2010. 4

S&P Leverage Lending Review 4 Q10. (2010). Large-Cap buyouts are companies with EBITDA >$50m.

48

7
Background

Co-investments in funds of funds and separate accounts

By Brian Gallagher, Twin Bridge Capital Partners

Co-investing in private equity has been around for years, but it has only recently become a truly mainstream form of investing. There are many reasons for this evolution. Most importantly, investors have come to realise that there are signicant quantitative and qualitative benets to co-investing. General partners (GP) have also learned that coinvesting has numerous benets for their investment programmes. The mutual benets that can be achieved through co-investing are well recognised. As a result, limited partners (LP) are, in increasing numbers, formalising co-investment programmes. Co-investing can be carried out in all areas of alternative investments including hedge funds, venture capital, mezzanine and buyout investments. Equity co-investment in buyout deals is the largest and most recognised segment and the focus of this discussion. The concepts and examples illustrated here, however, can be applied to any type of coinvestment regardless of whether the co-investments are done through a fund of funds vehicle or an institutional separate account.

History of coinvestment

Co-investment has been around for nearly as long as the buyout industry itself. The practice became more prevalent during the mid-to-late 1990s as institutional investors sought additional ways to deploy capital and GPs began to see LPs as helpful in executing larger transactions. Initially, it was common for equity sponsors to charge a reduced carried interest on co-investments. As the co-investment industry matured, GPs began to view co-investment investors as true partners. Deals were increasingly done with no management fee and no carried interest whereas today LPs generally expect, and often require, co-investments to be executed without a management fee and carried interest.

Current state of co-investment

Co-investing is now a mainstream and accepted component of todays private equity industry. During fundraising, GPs are routinely asked by interested LPs to address the likelihood of co-investment in their next fund. While some GPs look at co-investment as a requirement to entice certain LPs into a fund commitment, the practice has evolved into an important part of the business model for most equity sponsors, offering a wide range of benets to both the LP and the sponsor. It is important to note that while many LPs clamour for coinvestment opportunities, a signicant percentage of these LPs do not have the stafng or infrastructure to respond to and commit to co-investment opportunities in a timely manner. LPs who effectively structure their organisations to execute on a co-investment programme nd themselves at a competitive advantage for access to these benets. 63

section i: in-depth chapters

Benets to the LP Quantitative benets

Substantial quantitative benets accrue to co-investing LPs. These benets are attributable to the positive cash-ow characteristics associated with todays co-investment deals, including improved net return and accelerated capital deployment. Since co-investing is done either free of a management fee and carried interest, or at substantially reduced rates, the LP will, by denition, improve its net investment returns relative to a programme that invests exclusively in funds. The improvement in net returns for an active co-investor can be as much as 300 basis points or more as compared to a standard fund investing programme. By actively co-investing, an LP can deploy capital with quality sponsors at an accelerated rate, which reduces the J-Curve effect associated with its private equity investing. A thoughtful and well-constructed coinvestment portfolio can also allow the institutional investor to diversify further its portfolio and increase exposure to sectors that the co-investor prefers. For many active co-investing LPs, co-investments typically comprise 25 percent or more of their overall private equity exposure. Clearly, the quantitative benets experienced by the LP depend on the size of its co-investment portfolio. Figure 7.1 highlights the primary quantitative benets associated with a signicant co-investment programme.

Qualitative benets

In addition to the superior quantitative benets for an LP, the qualitative characteristics associated with co-investing yield ongoing returns to the relationship between the LP and the equity sponsor. Co-investments allow the investor to develop close relationships with senior equity sponsor professionals. This allows the investor to obtain a rst-hand Figure 7.1: sample net cash-ow by year traditional funds of funds versus funds of funds with co-investment
120 100 80

Funds of funds Funds of funds with co-investment

US$ millions

60 40 20 0 -20 -40 -60 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 -80

Years
Source: Twin Bridge Capital Partners.

64

Current trends in the fund of funds market: A survey of practitioners

By Kelly DePonte, Probitas Partners

Historically, funds of funds have offered convenient access to the private equity market, typically for smaller or more inexperienced investors wanting to observe the private equity market before developing their own investment programmes. The dening characteristics of funds of funds diversication and access are therefore aligned with the multi-faceted purposes of a range of players with different investment needs. Generalised diversication is no longer the name of the game as niche funds of funds have emerged to challenge the larger, established fund of funds managers. They are also tailoring programmes to more specic investor interests. These more targeted, niche funds of funds have cropped up in conjunction with increased separate account activity. Although it is impossible to adequately track the amount of funds being diverted from funds of funds to separate accounts and to measure a substitution effect, the important point to note is that the audiences for niche funds of funds and separate accounts are substantially different in terms of overall size, interest, and experience of the investor. While fund of funds managers with deep know-how and broad-based relationships may nd it relatively easy to address both funds of funds and separate accounts through their intermediary role, focused separate accounts do pose challenges for them for example when dealing with limited investment opportunities, time, or simply differences in scale. This new trend of specialised funds of funds is easily illustrated by the wide range of targeted investment mandates of the funds of funds currently in market, including distressed, Asia, emerging markets, Latin America, emerging Europe, venture capital, and debt. In order to understand better how fund of funds managers perceive the market and the issues that are important to them, we conducted an online survey of practitioners during the rst half of October, 2011.

Prole of respondents

In order to put the responses to the survey in proper context, the rst few questions are designed to build a prole of the respondents. Over 35 survey responses were received 75 percent of the respondents are from organisations headquartered in Western Europe or North America, the two most developed private equity markets. However, there is also a signicant number of responses from more emerging markets, led by Asia, a market where a number of funds of funds have been launched over the last ve to six years (see Figure 1).
105

section ii: The survey

Figure 1: Location of rms headquarters

Australia 5.7% Asia 14.3% Middle East 2.9%

Western Europe 51.4%

North America 25.7%

Most of the survey respondents are from well-established managers nearly two-thirds have been active in the market for ten years or more. There are no responses from new managers (that is, those that have only been active for two years or less), but in the difcult fundraising environment that has existed since the great nancial crisis, relatively few new groups have been established (see Figure 2). Figure 3 highlights the different types of strategies offered by respondent rms. It is obvious from a quick review of the percentages in the strategies that a number of rms provide funds of funds with different strategies while many of these rms provide
Figure 2: number of years active in private equity investing
Between 2 years and 5 years 11.1% More than 15 years 27.8%

Between 5 years and 10 years 25.0%

Between 10 years and 15 years 36.1%

*Less than 2 years 0%

106

A comprehensive directory of fund of funds practitioners and advisers

123 Venture
41 boulevard des Capucines Paris F-75002 France Tel: 33 1 4926 9800 www.123venture.com/ en info@123venture.com Assets under management: 375 million Year rst invested in private equity: 2001 Approx number of funds committed to: 15 Contacts Mr. Eric Philippon Partner philippon@123venture. com Mr. Olivier Goy Founder and Chief Executive Ofcer goy@123venture.com Regional allocation North America Western Europe Central & Eastern Europe Middle East / Africa Asia Pacic Latin America Fund type allocation Gereralist Buyout/later-stage Mid-market Venture Mezzanine/subordinated debt Turnaround/distressed Secondaries Infrastructure Other First-time funds Shariah-compliant funds Secdry sale of commitments 123 Venture provides advisory, consulting and fund of funds services mainly to private clients and family ofces, but also to institutional clients. It manages several funds of funds including: 123 Explorer (a diversied European fund of funds established in 2001), 123 Expansion funds, 123 Multinova funds and white label funds for Private Banks.

investment opportunities Secondary directs Directs Co-invests

57 Stars
616 H Street N.W. Suite 450 Washington DC 20001 United States of America Tel: 1 202 824 1600 www.57stars.net info@57stars.net Assets under management: $1 billion Year rst invested in private equity: 2007 Approx number of funds committed to: Contacts Mr. Steve Cowan Managing Director Washington DC Tel: 1 202 629 5733 scowan@57stars.net Mr. Bernard McGuire, Jr. Managing Director Washington DC bmcguire@57stars.net 57 Stars is an asset management rm focusing on private equity investments in emerging markets. The rm manages a couple of captive fund of funds vehicles for the New York State Common Retirement Fund (NYSCRF) and the California Public Employees Retirement System (CalPERS). In September 2011, the rms new Latin American focused fund of funds, the 57 Stars Latin American Opportunity Fund, announced its rst investment. The fund committed capital to Ptria Investimentos P2 Brasil Private Infrastructure Fund II, which invests in Brazilian infrastructure projects. Regional allocation North America Western Europe Central & Eastern Europe Middle East / Africa Asia Pacic Latin America Fund type allocation Gereralist Buyout/later-stage Mid-market Venture Mezzanine/subordinated debt Turnaround/distressed Secondaries Infrastructure Other First-time funds Shariah-compliant funds Secdry sale of commitments

investment opportunities Secondary directs Directs Co-invests

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section iV: The directory

747 Capital
747 Third Avenue 22nd Floor New York NY 10017 United States of America Tel: 1 212 747 7474 www.747capital.com info@747capital.com Assets under management: $130 million Year rst invested in private equity: 2000 Approx number of funds committed to: 35 Contacts Mr. Gijs F. J. van Thiel Managing Partner New York gijs@747capital.com Mr. Marc J. M. der Kinderen Managing Partner New York marc@747capital.com Regional allocation North America Western Europe Central & Eastern Europe Middle East / Africa Asia Pacic Latin America Fund type allocation Gereralist Buyout/later-stage Mid-market Venture Mezzanine/subordinated debt Turnaround/distressed Secondaries Infrastructure Other First-time funds Shariah-compliant funds Secdry sale of commitments 747 Capital is a New York-based fund of funds manager focused on the small-cap end of the US private equity market. The rm was established in 2001. 747 Capital provides family ofces and other institutional investors with diversied access to top tier US smallcap private equity funds, secondaries, and direct co-investments through the rms funds of funds, separate accounts, and LPspecic mandates.

investment opportunities Secondary directs Directs Co-invests

Abbott Capital Management

1211 Avenue of the Americas Suite 4300 New York NY 10036-8701 United States of America Tel: 1 212 757 2700 www.abbottcapital.com info@abbottcapital.com Assets under management: $8 billion Year rst invested in private equity: Approx number of funds committed to: Contacts Mr. Charles H. van Horne Managing Director Marketing and Client Services New York cvanhorne@ abbottcapital.com Abbott Capital Management (ACM) is an independent investment adviser focused exclusively on private equity. It operates mainly as a fund of funds manager, predominantly investing in US and Western European vehicles. In addition to its fund of funds products, Abbott Capital Management offers separate account management services in select cases. Abbott Capital is focused exclusively on investing in private equity funds including venture capital, buyouts and special situations funds, and making investments in professionally managed partnerships. Abbott manages 6 funds of funds vehicles. Regional allocation North America Western Europe Central & Eastern Europe Middle East / Africa Asia Pacic Latin America Fund type allocation Gereralist Buyout/later-stage Mid-market Venture Mezzanine/subordinated debt Turnaround/distressed Secondaries Infrastructure Other First-time funds Shariah-compliant funds Secdry sale of commitments

investment opportunities Secondary directs Directs Co-invests

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