The fundraising environment is becoming increasingly challenging for fund-of-funds (FoF).
In 2013, only 72 FoFs were able to raise a total of US$12 billion, compared to 87 funds collecting a total of US$16 billion in 2012, according to private equity research firm Preqin.
These numbers are a stark contrast to the fundraising record set in 2007, when 164 FoFs raised a total of US$58 billion.
As a result, many FoF managers are diversifying their offerings by providing separate account services to attract investors.
About 65% of FoFs surveyed by Preqin says that separate accounts would be as or more important to their investment activity in the next year.
Hamilton Lane has the largest separate account assets of US$18.9 billion, compared to the firm’s total discretionary assets of US$28 billion.
Pathway Capital Management and BlackRock Private Equity Partners come in second and third place, managing US$14.5 billion and US$9.3 billion in separate accounts respectively.
Pantheon Ventures manages US$7.7 billion in separate accounts.
The average size of all FoFs’ separate accounts surveyed by Preqin is over US$250 million, much larger than the average investor commitment in a fund of funds vehicle.
"Our survey shows that this activity could be on the rise, as fund of funds managers rely on it more and LPs (Limited Partners) that have the capital to invest via separate account mandates look to take advantage of the benefits this method of investment can give them,” Ignatius Fogarty, head of private equity products at Preqin, comments.