Fund of Funds (FoF)
A fund of funds (FoF) is an investment vehicle that allocates capital into multiple underlying funds rather than investing directly into companies or assets.
Allocator relevance: FoFs trade fee drag for access, diversification, and manager selection—allocators must underwrite selection skill and transparency.
Expanded Definition
FoFs provide exposure to a portfolio of managers, often targeting diversification, early access, smaller-ticket entry into hard-to-access funds, or specialized selection expertise. They are common in venture and private equity, especially when direct manager selection is resource-intensive.
The core question for allocators is whether the FoF adds net value after fees: do they deliver access, better selection, better pacing, or superior diligence that the allocator cannot efficiently replicate?
Decision Authority & Governance
Governance focuses on manager selection process, conflicts (allocation decisions among relationships), fee layering disclosure, reporting transparency, and the ability to provide look-through exposure. Decision authority includes how underlying funds are chosen, monitored, and recycled/re-upped.
Common Misconceptions
- FoFs are always “safer” than direct funds.
- Diversification eliminates manager risk.
- Look-through transparency is automatic in FoFs.
Key Takeaways
- The edge is selection + access + reporting, not structure.
- Fee drag must be justified with measurable value.
- Demand look-through and clear governance.