A fund of funds (FoF) pools LP capital and commits it across a portfolio of underlying fund managers instead of making direct company investments.

How it works

The FoF GP conducts manager selection—sourcing VC, growth, buyout, or hybrid funds—sizes commitments, and monitors performance across vintages. LPs subscribe once to the FoF and inherit exposure to many strategies and geographies. Economics typically include FoF management fees plus the fees and carry of each underlying fund—a double fee stack unless negotiated. Cash flow timing lags direct investing because capital calls pass through two layers. Some FoFs are programmatic (mandate-driven diversification); others are highly selective concentrated portfolios of top-quartile relationships.

Why it matters

• LPs: FoFs offer diversification, manager access, and operational simplicity for teams without large private markets staffs. Evaluate net returns after all fee layers and the FoF’s edge in manager selection.
• GPs (underlying): FoF LPs can anchor a first-time fund or fill a closing slot, but FoF diligence is process-heavy and relationship-driven.

Common mistake

Assuming FoF diversification eliminates venture risk—it spreads manager and vintage risk but still correlates with private market cycles.

Related ideas

Direct fund investing, general partner selection, vintage diversification, and secondary fund strategies.