4Q 2017 Analyst Note: Investors Just Don't Wanna Have Funds-of-Funds
December 04, 2017
In recent years, alternative asset managers have spent considerable time rethinking the channels through which limited partners (LPs) access private capital funds. Highly sophisticated institutional investors have been the targets of many of these initiatives. At the same time, asset managers have continued innovating to make private capital markets more accessible for the masses, who now enjoy access points via liquid alt funds, publicly traded PE firms, and indices that mimic private market strategies. As investors have gravitated towards one side or the other, more traditional access options—namely FoFs—have suffered. PitchBook's latest research note unpacks the drivers behind the decline in FoF, as well as important points regarding their potential pathway forward.
Funds-of-funds (FoF) fundraising activity in 2016 slipped for the fourth consecutive year, falling to the lowest level since 2003, and it appears that 2017 is primed for another downtick.
FoFs face several criticisms from investors, but the most important is a history of lackluster performance.
At this point, it seems safe to say that the traditional FoF model is all but dead; however, that doesn’t mean that FoFs are entirely doomed.