--- title: "Fund of Funds (FoF) | Altss Glossary" description: "A fund of funds (FoF) is a fund that invests in other funds rather than directly in companies or assets, giving its investors diversified exposure across…" canonical: "https://altss.com/glossary/fund-of-funds-fof" --- Glossary · Fund / vehicle structure # Fund of Funds (FoF) Also called: fund-of-funds · multi-manager fund A fund of funds (FoF) is a fund that invests in other funds rather than directly in companies or assets, giving its investors diversified exposure across managers, strategies or vintages in exchange for an additional layer of fees. Publisher: Altss LLCPublished 2026-01-06Content modified 2026-10-02 ALTSS-STRUCT-029 Instead of picking ten private equity managers itself, an investor commits to one fund whose manager picks them. The investor gains diversification, access and administrative simplicity, but pays the fund-of-funds manager's fees on top of the underlying funds' fees. ## Types **Primary fund of funds:** commits to newly raised funds. **Secondary fund:** buys existing fund interests; usually classified separately because of different pricing and cash-flow profile. **Co-investment fund:** invests alongside sponsors in single deals (see [co-investment](https://altss.com/glossary/co-investment)). **Multi-strategy programmes** combine all three. In hedge funds, a fund of hedge funds allocates across hedge fund managers with its own liquidity terms. Funds of funds also take the form of separate accounts for large institutions, often run by an [OCIO](https://altss.com/glossary/ocio) or [investment consultant](https://altss.com/glossary/investment-consultant) with discretion. ## Fees The FoF manager charges a management fee, usually lower than a direct fund's, and often a carried interest or performance fee, on top of the full fees of the underlying funds. The exact level varies by product and investor size. The worked example shows how a modest second layer reduces multiples materially; the effect on IRR is also amplified by the FoF's own cash drag. ## What investors get for the extra layer Diversification across managers and vintages; access to managers with limited capacity; manager selection and monitoring expertise; consolidated reporting, cash management and administration; and, for smaller investors, lower minimums than direct fund commitments. For a newer private-markets programme, a FoF can build a diversified portfolio faster than separate commitments would. ## Cash-flow profile A primary FoF's J-curve is usually deeper and longer than a single fund's, because it commits to underlying funds over several years and each has its own J-curve. Capital is called in smaller, more frequent increments and distributions arrive later and more evenly. ## Jurisdiction and status (US) In the US, a fund of funds counts as one beneficial owner of an underlying fund that relies on Investment Company Act section 3(c)(1), unless it owns 10% or more of that fund's voting securities and is an investment company, or would be one but for section 3(c)(1) or 3(c)(7); then its own holders are counted. Registered funds of funds face statutory limits: under section 12(d)(1)(A) a registered fund, together with the companies it controls, may not acquire another investment company's securities if it would then own more than 3% of that fund's total outstanding voting stock, hold securities of that fund worth more than 5% of its own total assets, or hold securities of investment companies worth more than 10% of its total assets in aggregate. Rule 12d1-4 permits registered funds and business development companies to invest in registered funds above those limits on conditions. Among them, the acquiring fund and its advisory group may not control the acquired fund and become subject to voting conditions once they hold more than 25% of an open-end fund's, or more than 10% of a closed-end fund's, voting securities; and the acquired fund generally may not hold more than 10% of its total assets in other investment companies and private funds. ## Worked example ### Illustrative double fee layer ($ millions) A fund of funds invests $100m in underlying funds that return $180m after their own fees and carry (1.80x net). The FoF also called $8m from its LPs for its own management fees and expenses, so LPs paid in $108m. The FoF takes 10% carry on its $72m profit ($7.2m), leaving $172.8m for its LPs: a net total value to paid-in (TVPI) of **1.60x** against 1.80x at the underlying-fund level. Examples are illustrative; figures are not market data. ## Not the same as - [Master-Feeder Structure](https://altss.com/glossary/master-feeder): A feeder invests in a single master run by the same manager; a fund of funds allocates across several funds, usually of different managers. - Feeder Fund: A feeder aggregates investors into one fund; a fund of funds selects and diversifies across many. - Secondary Fund: A secondary fund buys existing interests at negotiated prices; a primary FoF commits to new funds at their launch. ## How it is classified - Primary FoF if most capital is committed to newly raised third-party funds. - Classify as secondary fund if most capital buys existing fund interests or GP-led positions. ## Common mistakes - Comparing FoF net returns with direct fund net returns without accounting for the second fee layer. - Treating a secondary fund as an ordinary fund of funds; its pricing, J-curve and risk differ. - Assuming a FoF's diversification removes manager-selection risk; the FoF manager's own selection skill still matters. ## Edge cases - Some FoFs invest in the FoF manager's affiliated funds, creating a fee-on-fee conflict that is usually addressed by rebates. - Evergreen and registered FoFs offer periodic liquidity while holding illiquid underlying funds. ## Sources - [15 U.S.C. 80a-3 - Definition of investment company (Investment Company Act sec. 3, incl. 3(c)(1) and 3(c)(7))](https://www.law.cornell.edu/uscode/text/15/80a-3). U.S. Congress (United States Code; LII mirror), Current US Code text as published by LII (accessed 2026-10-01). Status: in force (checked 2026-10-01). Sec. 3(c)(1)(A) — supports: 10% look-through when counting beneficial owners of a 3(c)(1) fund - [15 U.S.C. 80a-12 - Functions and activities of investment companies (ICA s.12), incl. s.12(d)(1)](https://www.law.cornell.edu/uscode/text/15/80a-12). U.S. Congress (US Code via LII), Current US Code text as published by LII (accessed 2026-10-01). Status: in force (checked 2026-10-01). Sec. 12(d)(1)(A)(i)-(iii) — supports: 3%, 5% and 10% limits on registered funds acquiring other investment companies - [17 CFR 270.12d1-4 - Exemptions for investments in certain investment companies](https://www.law.cornell.edu/cfr/text/17/270.12d1-4). U.S. Securities and Exchange Commission (CFR text via LII), Current CFR text as published by LII (accessed 2026-10-01); source line 85 FR 74005, Nov. 19, 2020. Status: in force (checked 2026-10-01). 17 CFR 270.12d1-4(a), (b)(1), (b)(3) — supports: Exemption for registered funds and BDCs acquiring registered funds; no control and voting conditions for the acquiring fund and its advisory group above 25% (open-end) or 10% (closed-end); acquired fund's 10% limit on investment companies and private funds, with exceptions ## Related terms 7 terms - [Co-Investment](https://altss.com/glossary/co-investment) - [Master-Feeder Structure](https://altss.com/glossary/master-feeder) - [Fee Drag](https://altss.com/glossary/fee-drag) - [J-Curve](https://altss.com/glossary/j-curve) - [Manager Selection](https://altss.com/glossary/manager-selection) - [Outsourced Chief Investment Officer (OCIO)](https://altss.com/glossary/ocio) - [3(c)(1) Fund](https://altss.com/glossary/3-c-1-fund) ## Referenced by 1 term - [Hedge Fund](https://altss.com/glossary/hedge-fund) ## Concept record Concept ID ALTSS-STRUCT-029 Classification Fund / vehicle structure · Manager type Topics Fund structures Version 2.0.0 Last reviewed 2026-10-02 Structured data [JSON](https://altss.com/reference/concepts/fund-of-funds-fof.json) Source check Legal and regulatory statements checked against the cited primary sources on 2026-10-02 ([how](https://altss.com/methodology)). General information, not advice. ## Canonical URL https://altss.com/glossary/fund-of-funds-fof