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  • PREQIN SPECIAL REPORT: PRIVATE EQUITY FUNDS OF FUNDS

    NOVEMBER 2017

    alternative assets. intelligent data.

  • © Preqin Ltd. 2017 / www.preqin.com2

    PREQIN SPECIAL REPORT: PRIVATE EQUITY FUNDS OF FUNDS

    FOREWORD

    The private equity fund of funds market has changed significantly over the last decade. While most of the private equity industry has grown substantially over the last 10 years, funds of funds have faced challenges, with fundraising totals remaining considerably below the levels seen during the peak years of 2007 and 2008.

    As the private equity industry has evolved and the sophistication of investors has increased, the fund of funds model has come under increasing scrutiny. Private equity fund of funds managers have had to respond by adapting their businesses and investment approaches. By merging with or acquiring other firms, changing their business models and making increased use of alternative investment methods such as separate accounts and co-investments, fund of funds managers have tried to create opportunities for themselves through gaining scale or becoming more specialized.

    In this report, we examine the current state of the industry and how fund of funds managers have adapted to this new environment.

    Key findings include: ■ A Challenging Environment: While most of the private equity industry has seen significant growth over the past decade, investor

    concerns about fees and the efficacy of the fund of funds model mean that fundraising levels remain considerably below those seen before the Global Financial Crisis of 2007-2008.

    ■ A Changing Industry: In the face of these challenges, private equity fund of funds managers are taking a number of different approaches in order to remain competitive: attempting to gain scale through consolidation, changing their fee structures or targeting new investment niches.

    ■ The Continuing Relevance of Funds of Funds: Significant challenges remain for private equity fund of funds managers as they seek to adapt to these changing conditions, but the industry continues to play an important role for many investors.

    We hope that you find this report useful and welcome any feedback you may have. For more information about how Preqin’s data can help you, please visit www.preqin.com or contact [email protected]

    All rights reserved. The entire contents of Preqin Special Report: Private Equity Funds of Funds, November 2017 are the Copyright of Preqin Ltd. No part of this publication or any information contained in it may be copied, transmitted by any electronic means, or stored in any electronic or other data storage medium, or printed or published in any document, report or publication, without the express prior written approval of Preqin Ltd. The information presented in Preqin Special Report: Private Equity Funds of Funds, November 2017 is for information purposes only and does not constitute and should not be construed as a solicitation or other offer, or recommendation to acquire or dispose of any investment or to engage in any other transaction, or as advice of any nature whatsoever. If the reader seeks advice rather than information then he should seek an independent financial advisor and hereby agrees that he will not hold Preqin Ltd. responsible in law or equity for any decisions of whatever nature the reader makes or refrains from making following its use of Preqin Special Report: Private Equity Funds of Funds, November 2017. While reasonable efforts have been made to obtain information from sources that are believed to be accurate, and to confirm the accuracy of such information wherever possible, Preqin Ltd. does not make any representation or warranty that the information or opinions contained in Preqin Special Report: Private Equity Funds of Funds, November 2017 are accurate, reliable, up-to-date or complete. Although every reasonable effort has been made to ensure the accuracy of this publication Preqin Ltd. does not accept any responsibility for any errors or omissions within Preqin Special Report: Private Equity Funds of Funds, November 2017 or for any expense or other loss alleged to have arisen in any way with a reader’s use of this publication.

    p3 Key Facts p4 A Challenging Environment p7 A Changing Industry p10 The Continuing Relevance of Funds of Funds

    PRIVATE EQUITY ONLINE

    Private Equity Online is Preqin’s flagship online private equity information resource and encompasses all of Preqin’s private equity and venture capital databases, with unrivalled data and intelligence on all aspects of the asset class, including fund terms and conditions, fundraising, fund managers, institutional investors, fund performance, deals and exits and more.

    Constantly updated by our teams of dedicated researchers strategically located in industry centres around the globe, Private Equity Online represents the most comprehensive source of industry intelligence available today.

    www.preqin.com/privateequity

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    3

    DOWNLOAD DATA PACK: www.preqin.com/PEFOF17

    KEY FACTS

    $26bn Amount secured by private

    equity funds of funds closed in 2016, a post-crisis high.

    17 private equity funds of funds

    are currently in market, targeting an aggregate

    $80bn

    $357mn The average size of private

    equity funds of funds closed in 2016.

    $381bn The size of the private equity

    fund of funds industry.

    LOCATION OF ACTIVE PRIVATE EQUITY FUND OF FUNDS MANAGERS

    141

    33

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    21 18 15 13

    6 5 5 5 5 5 5 4 4 4 4

  • © Preqin Ltd. 2017 / www.preqin.com4

    PREQIN SPECIAL REPORT: PRIVATE EQUITY FUNDS OF FUNDS

    A CHALLENGING ENVIRONMENT

    68 72 67

    43

    73

    104

    126

    160 155

    109

    76 88

    102 94 99 88 84

    42

    20 12 13 8

    19 31 34

    55 50

    25 16 18 21 17 17 21

    26 10

    0

    20

    40

    60

    80

    100

    120

    140

    160

    180

    20 00

    20 01

    20 02

    20 03

    20 04

    20 05

    20 06

    20 07

    20 08

    20 09

    20 10

    20 11

    20 12

    20 13

    20 14

    20 15

    20 16

    20 17

    Y TD

    No. of Funds Closed Aggregate Capital Raised ($bn)

    Source: Preqin Private Equity Online

    Year of Final Close

    Fig. 1: Annual Private Equity Fund of Funds Fundraising, 2000 - 2017 YTD (As at September 2017)

    9%

    4%

    0% 2% 4% 6% 8%

    10% 12% 14% 16% 18% 20%

    20 00

    20 01

    20 02

    20 03

    20 04

    20 05

    20 06

    20 07

    20 08

    20 09

    20 10

    20 11

    20 12

    20 13

    20 14

    20 15

    20 16

    20 17

    Y TD

    No. of Funds Closed Aggregate Capital Raised

    Source: Preqin Private Equity Online

    Pr op

    or tio

    n of

    To ta

    l

    Year of Final Close

    Fig. 2: Private Equity Fund of Funds Fundraising as a Proportion of All Private Equity Fundraising, 2000 - 2017 YTD (As at September 2017)

    381

    2,582

    0

    500

    1,000

    1,500

    2,000

    2,500

    3,000

    D ec

    -0 0

    D ec

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    D ec

    -0 2

    D ec

    -0 3

    D ec

    -0 4

    D ec

    -0 5

    D ec

    -0 6

    D ec

    -0 7

    D ec

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    D ec

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    D ec

    -1 0

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    -1 1

    D ec

    -1 2

    D ec

    -1 3

    D ec

    -1 4

    D ec

    -1 5

    D ec

    -1 6

    Private Equity Funds of Funds Private Equity (Excl. Funds of Funds)

    Source: Preqin Private Equity Online

    A ss

    et s

    un de

    r M an

    ag em

    en t (

    $b n)

    Fig. 3: Private Equity Fund of Funds Assets under Management, 2000 - 2016

    86%

    51% 41% 38%

    32%

    16% 11% 11% 10%

    0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

    Pr ic

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    Va lu

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    of D

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    in an

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    Tr an

    sp ar

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    Source: Preqin Investor Outlook: Alternative Assets, H2 2017

    Fig. 4: Investor Views on the Key Issues Facing Private Equity in the Next 12 Months

    Pr op

    or tio

    n of

    R es

    po nd

    en ts

    FUNDRAISING IS LOWER THAN A DECADE AGO The private equity fund of funds industry has faced significant challenges over the past decade. While the private equity industry as a whole