On the Private Markets Racetrack, a Fund-of-Funds May Help You Win

Executive summary:

  • We believe a fund-of-funds approach to private markets allows for institutional investors to reap the benefits of a robust alts program without having to deal with all the complexities and hassles.
  • In a fund-of-funds approach, all the benefits of a private-assets program are still provided, but all the burden of building and maintaining the program is taken off the investor. In addition, a fund-of-funds approach allows investors to access these benefits with relatively small commitment amounts.
  • There is a significant dispersion between top and bottom-performing private markets strategies, which makes a fund-of-funds approach—where intentionally different strategies are incorporated—result in a smoother return pattern for investors.

How do you achieve a sub-ten-second quarter mile at the drag strip? Option one: Buy an old Mustang and spend years in your garage, turning it into a drag car, assuming you have the money, tools, technology, mechanical skills, and can handle the risk. Or option two: Buy a Tesla Model S Plaid. With astonishing simplicity, the car can demolish the quarter mile in 9.23 seconds, right off the showroom floor. After winning the race, you can still go pick up your kids from school.

Adding private markets to your institutional investment portfolio can seem as intimidating and complicated as building a racecar. A fund-of-funds approach is simpler—the benefits of alts without the hassle. More like that showroom-floor example. You might call it turnkey.