An increasing number of investors are selling their limited partnership interests in funds of funds, but the buyer universe for the market is limited, said Sunaina Sinha, managing partner of Cebile Capital, a London-based placement agent and secondaries advisory firm.
Investors selling their stakes in funds of funds cannot run wide auction processes because a lot of buyers are their competitors.
“The challenge is not all buyers are able to get consent to transact in funds of funds, the buyers have to be real institutional LPs,” she said.
However, institutional investors often need help buying secondaries, particularly funds of funds which are difficult to price.
“Funds of funds often have fees-on-fees and carry-on-carry issues,” Sinha added.
In addition a lot of funds of funds don’t give the same visibility as other funds, so trading them on the secondaries market has its own challenges, even if the right buyer has been selected.