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.
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