A fund of funds (FoF) is a fund whose portfolio consists of other funds — the manager selects and allocates across underlying private equity, credit, hedge, or real estate funds rather than picking assets directly. It sells diversification, access, and selection in one subscription, priced with the structure’s famous cost: a second layer of fees.
The trade the structure offers
What the FoF provides: diversification across managers, strategies, and vintages that a single commitment can’t match; access to funds closed to new or smaller investors (established FoFs hold relationships and allocations individuals can’t replicate); selection and administration — manager diligence, capital-call management, consolidated reporting, one K-1 instead of twenty. What it costs: FoF-level management fees (historically ~1% and often carry of ~5–10%) stacked atop each underlying fund’s full economics — a double layer that gross returns must clear, and the reason the classic diversified FoF has ceded ground to lower-cost formats: separately managed accounts for institutions, secondaries and co-investment-focused FoFs (where the strategy adds return rather than just breadth), and the registered access vehicles — many tender offer funds are FoFs structurally — that bring the format to advised clients. Distinguish the feeder fund: a feeder aggregates into one underlying fund (access play); a FoF selects among many (portfolio play). The evaluation frame: the second fee layer buys diligence, access, and diversification — worth paying when the client genuinely can’t assemble those directly, and worth challenging when the underlying exposure is reachable cheaper.
Related terms
Feeder Fund · Secondaries · Co-Investment · Vintage Year · Tender Offer Fund
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