Private Equity fund-of-funds is a new concept in Brazil, but exists globally since 1979, where they are responsible for over 20% of all capital allocated to private equity funds.
The growth and development of the Latin American private equity market, makes fund-of-funds an important product.
The role of fund-of-funds
PE fund-of-funds have the flexibility
to efficiently allocate its capital, investing not only in funds (primary or secondary), but also making co-investments into companies alongside select fund managers.
Types of fund-of-funds investments
| Primary investments: |
Investments in new funds managed by experient, exceptional teams, with the potential of generating superior returns. |
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| Secondary Investments: |
Acquisition of shares in existing funds, usually at significant discounts to the NAV and shorter maturity periods. |
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| Co-investiments: | Investing directly in portfolio companies, alongside select fund managers. Usually done when investment tickets exceed fund's capacity or when managers are short of capital to undertake new transactions. |
Benefits
Investing in private equity funds requires a profound knowledge of both this complex asset class and the target market, especially in an emerging market. Having each investor setting up a team of experts and also handling all the administrative burdens of private equity investing can be both inefficient and ineffective. The discrepancy of returns between funds is extremely high. Also, as private equity funds are close-ended vehicles with terms of 5 to 10 years, investment mistakes can be quite costly and difficult to undo.
Diversification is a key component of a private equity program, but many investors do not have enough capital or PE risk management skills to build an adequate regional portfolio. Also, many funds in Latin America do not seek out for foreign capital in their fundraising process, limiting exposure of foreign players to the local market.
A local Fund-of-Funds offers a simple solution to any investor that wants to have a select, but diversified regional private equity portfolio with a single investment.
Benefits to the investor
| Diversification: | A portfolio of funds highly dilutes the risk of investing in private equity. (more info) |
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| Superior returns: | Fund-of-fund managers are able to identify top performing funds. (more info) |
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| Access: | Fund-of-funds can gain better access into oversubscribed funds. (more info) |
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| Scale: | Pooling investors together, a fund-of-funds is able to gain enough scale to be a relevant investor in each underlying fund. (more info) |
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| Cost reduction: | A fund-of-funds dilutes administrative costs that would have been created with in-house specialized investment teams. (more info) |
INVESTMENT FUNDS ARE NOT COVERED BY ANY GUARANTEE FROM THE ADMINISTRATOR, FUND MANAGER, INSURANCE OR FUNDO GARANTIDOR DE CRÉDITO – FGC. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RETURNS. IT IS HIGHLY RECOMMENDED THAT POTENTIAL INVESTORS READ THE FUND'S OFFERING DOCUMENTS BEFORE ANY INVESTMENT DECISION IS MADE.
