Private Equity Funds-of-Funds and Multi-Fund Separate Accounts

COVERING: Private Equity, Investment Strategies

8 Lessons 1h

Join Kelly DePonte for this course, as he discusses the history of the development of Funds-of-Funds and Separate Accounts and how they have changed their focus as the markets have advanced.

Course Registration

Professional

INCLUDED

Member Registration

This course is available to professional level members.

Please sign in to access this course.

Join Now 390/yr

PLUS

INCLUDED .

Member Access

PLUS level membership provides access to all IMDDA courses and all professional member benefits.

Access for as long as the membership is active.

Join as a PLUS Member $1995/yr

Non-Member

$295 6 Month Access

Non-Member Access

Purchase this course without additional membership benefits.

Provides access to the course only.

Enroll Now

More Information

Curriculum

Funds-of-Funds: Structural Overview

- History
  - Beginning with Separate Accounts in the 1970s for large institutional investors
  - Product developed by offering true multi-party FoFs vehicles focused on large diversified portfolios across investment strategies and often geographies
  - Many large Private Equity consultants develop FoFs as an adjunct business to consulting
  - Over the last 20 years, more Funds-of-Funds have developed in other sectors, including private real estate and private infrastructure
  - Since the Great Financial Crisis more focus on targeted niche strategies and separate accounts
  - More focus now on smaller institutions with limits on internal staff and High Net Worth Individuals
- Professional Management
  - Key selling point – outsourced professional staff
  - Fund due diligence and selection
  - LPA agreement negotiation
  - Back office administration and cash management
  - Underlying fund management oversight
- Portfolio Diversification
  - By fund manager
  - By fund strategy
  - By vintage year
  - By geography
    - KNOWLEDGE CHECK: What is a Separate Account?
  - Double Fee Layer
    - Major issue for many large limited partners
    - FoFs charge management fees and often carried interest
    - They also pay fees, carry and expenses to the underlying funds they invest in

Investment Strategies Beyond Fund Selection and Portfolio Management

- Co-Investments
  - Designed to decrease fee load and improve net returns
  - There are a few dedicated co-investment fund-of-funds
- Secondaries
  - Designed to deploy capital more quickly in order to minimize the gap between Gross and Net IRR
  - There are also dedicated secondary vehicles that fall into a separate category
- Targeted Sectors
  - Niche focused strategies (such as small-market buyouts, early-stage VC or Asian-focused funds)
  - These niche FoFs not only target specific sectors but different investor bases

Bespoke Products: Separate Accounts and Large Institutional Investors – Funds-of-One

- Vehicle may give the manager wide investment discretion, narrow discretion within a box, or may require investor approval
- Often focused on targeted access to specific sectors or geography
- Often include heavy co-invest component
- May also include an element of strategic market advice
- Lower costs
  - To Investors
  - To Fund Managers – though may require more personal touch
    - KNOWLEDGE CHECK: What are the two basic benefits of Funds-of-Funds?

Consulting and Multi-Product Risks

- Potential conflicts of interests between clients
  - Fund access
  - Co-invest access
  - Secondary access
    - KNOWLEDGE CHECK: How do Funds-of-Funds Managers try to limit the impact of a double-layer of fees?

Retail Vehicles: A Sector of Growing Interest

- Key issue: Liquidity during market and investor stress
- Cost of accessing clients and return impact
- High cost of account maintenance
- Litigation
- Publicly-traded vehicles

Performance and Benchmarking

- No formal benchmarks and an inefficient market
- Performance profile
  - Underlying funds invested in should skew towards higher quartiles
  - Fund overall performance should be less volatile

Issues of the Past

- Fund leverage in falling markets
- Portfolios concentrated by vintage year
- Market volatility and publicly traded vehicles
- Liquidity

What you'll learn

Who Should take this

Prerequisite knowledge

interested in joining?

It will save you on course registration fees AND give you access
to all the other member benefits.

Learn More

Your instructor

Kelly DePonte
Managing Director
Probitas Partners

Kelly has more than thirty-nine years of industry experience and is responsible for Probitas Partners’ research. Prior to joining Probitas Partners, Kelly was Chief Operating Officer and Managing Director at Pacific Corporate Group (“PCG”), a leading provider of alternative investment advisory, management and consulting services. Kelly oversaw the partnership investment program, which comprised more than $20 billion in capital dedicated globally to private equity. Before joining PCG, Kelly held various senior positions at First Interstate Bancorp, including management of a $170 million venture capital portfolio, oversight of all financial derivative activity in the corporation and its banks, and analysis and management of capital and liquidity positions of First Interstate subsidiaries.

Kelly is also a Member of the Advisory Board of the Investment Management Due Diligence Association (IMDDA.org) providing advice on closed-end fund due diligence. Previously, he served on the Editorial Advisory Board of The Review of Private Equity, and he is the editor of several books published by PEI Media: “The Definitive Guide to Private Equity Fund Due Diligence” (1st & 2nd editions); “The Definitive Guide to Distressed Debt and Turnaround Investing” (1st & 2nd editions); and “A Guide to Private Equity Fund of Funds Managers” (2nd edition). Kelly earned a BA in Communications from Stanford University and an MBA from The Anderson Graduate School of Management at UCLA.