The market for funds of funds is really a tale of two cities. The larger funds of funds are struggling to raise capital, because some LPs are trying to cut back on management fees and can more easily invest in the larger market without the help of a fund of funds funds, which are raised to invest in larger and/or difficult-to-invest-in private equity funds. However, in the mid- to lower- fund-of-funds market, that's simply not the case.

747 Capital's Josh Sobeck reports good reception to his firm's smaller, niche-focused fund of funds. "Funds of funds that offer something unique or compelling for the LPs that don't have an in-house ability to make those investments directly are doing very well," says Sobeck.

747 raised a $50 million fund of funds in 2011 and is in the market now, raising a new fund of funds. With micro funds, LPs see something unique to put their capital behind. "It's difficult to access the smaller end of the market and do due diligence on it, because the space is so opaque," says Sobeck. "LPs can more easily put their dollars directly to work in a fund like KKR. Funds of funds that access markets that are harder to get to are raising funds successfully."

According to Preqin, 69 funds of funds were raised in 2012 globally. Other funds of funds that have successfully raised capital recently are smaller for the most part. In 2012, Access Capital Partners closed on Access Capital Fund V Growth Buyout Europe with $649 million, trumping its initial target of $454 million. The fund invests in small- and mid-market buyouts in Europe.

Currently, Hamilton Lane is working on raising a $400 million fund of funds, while Accolade Partners IV closed a fund with $150 million for investment in venture capital and growth equity.

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