Get rid of all links from blogs. All run of site links. They are now noxious, not useful. Here's some related literature....
Friday, September 02, 2022
In public equity markets, the era of managed mutual funds is over due to the overwhelming improvement of using passively managed low cost index funds or EFTs. Cheaper, better-performing, more liquid, and so on.
I've been looking at Funds of Funds for private investments these week and they remind me of the old mutual funds. Totally illiquid. Very expensive. Old school.
I'm imaging a new type of FoF for either VC or PE. Three characteristics.
1. Limited Fees. A mgt percent of perhaps 0.5% - 1%. Another 1% on the carried interest.
2. A simple mgt philosophy investment on picking the funds driven entirely off one of the rating agency algorithms. Of course, the funds have to agree to the terms.
3. An evergreen aspect with a quarterly pricing mechanism for adding or closing out investments. This is the trickiest and it should be developed by looking at the evergreen PE funds as to how they value and regulate the flow in and out.
It'll be popular since it's diversified, people can just keep adding, no need to raise new rounds, and so on.
Thursday, September 01, 2022
Pros for an individual to invest through a fund of funds:
2. Access to large funds with high minimums
3. Access to small niche funds
Cons for an individual to invest through a fund of funds:
1. Cost. Double fees! 0.5% to 1% for management and 5% to 10% for carried interest returns. PE are traditionally charging 2% and 20%
2. Longer Commitment. PE firms are 3-7 years, a FoF is 12 years.
The Fund of Funds idea is in decline. More specifically, it has not grown as fast as PE investments over the last decades. Most PE investors now have staff using databases for their investment. Largest funds of funds include Hamilton Lane, HarborurVest Partners, Pathway Capital Mgt, Fort Washington Investment Advisors, AlpInvest Partners, and Adams Street Partners.
1. The longer terms and higher fees feels like a big negative.
2. How much diversification do I need? A fund generally does 10 investments, there's lots of diversification right there.
I had hoped that the funds of funds would provide more (NOT less) liquidity. I thought they could be evergreens with a quarterly price to get in and out, all based on NAV.
I was also thinking that a VC fund of funds would be the way to go. I just looked at one of their books and the fees seem high, worth it for the access to great VCs?