PE Key Trends Blog

Palico in Focus - Funds-of-Funds Renaissance

Mar 24, 2017 10:25:50 AM

Tags: Palico In Focus, V2

Private equity funds-of-funds have gone through a major transformation since the financial crisis; one that is leading to renewed fundraising success. This is evident in Palico’s online private equity marketplace, where out of a field of 14 different private equity categories, fund-of-fund vehicles account for nearly 20 percent of the 50 most popular fundraisings.

Consolidation and Specialists Mean New Demand for Funds-of-Funds

Post-financial crisis, many private equity investors cut allocations to funds-of-funds - valued for access to oversubscribed managers in the boom years - and instead invested directly with managers. This sparked a fundamental change in an overcrowded sector. Significant numbers of funds-of-funds closed. Others merged: One third of general partner consolidations since 2010 have involved funds-of-funds. Sector consolidation has lead to groups with exceptional global reach and renewed appeal. In the years since the financial crisis, specialist funds-of-funds with highly valued knowledge of niches and regions have also replaced small to mid-sized generalists.

Greater Use of Secondaries Improves Appeal

Another factor leading to renewed demand for funds-of-funds is the sector’s now frequent investment in more mature funds through the secondary market. Since funds sold on the secondary market already hold assets that can be analyzed (unlike blind-pool fundraisings), risk is reduced. Significant use of secondaries also leads to rapid cash distributions for investors. Funds bought on the secondary market liquidate on average in just three to five years, versus a commitment period of 10 years or more for primary fundraisings. Palico estimates that funds-of-funds today allocate at least a fifth of their capital to secondaries, versus just 5 percent a decade ago.

Specialist Fund-of-Fund Opportunities on Palico

Smaller, specialized funds-of-funds are particularly popular investments for the more than 2,800 accredited investors in Palico’s online marketplace. Among fundraisings of $500 million or less, Palico currently has data rooms for 17 investable fund-of-fund opportunities. The focus of these smaller fund-of-fund investment opportunities is varied; Eastern Europe, structured equity, social impact funds, and Asia Pacific tech fund secondaries, are some examples of niches.

Palico is a Marketplace where Funds-of-Funds can Find Investments

While funds-of-funds are popular investments for Palico’s accredited investors, the marketplace is equally an ideal hunting ground for funds-of-funds looking to put their capital to work. In addition to covering the 14 strategies mentioned above, available fund investments on Palico cover 25 industries and 142 countries or regions.

Palico is the Online Marketplace for PE Fundraising

The growing diversity of private equity means traditional methods of sourcing and evaluating investment opportunities aren’t enough. Palico’s private equity fund marketplace securely opens up new investment opportunities for limited partners online, with a vast range of primaries, secondaries and co-investments. Palico is where both investors and managers go for more private equity.