HarbourVest most sought-after as FoF pricing gap closes

Fund of funds stakes are trading in the mid-80s as a percentage of net asset value, as growing numbers of buyers see value in the strategy.

The average top price of a fund of funds interest was 86.77 percent of NAV in the 12 months to 30 April, up on 72.25 percent five years ago, according to a price report by intermediary Setter Capital. Funds of funds of 2010-vintage and newer are selling for an average top price of 91.4 percent of NAV, the report noted.

The average top price of leveraged buyout funds was 97.74 percent of NAV in the 90 days to 28 February, with buyout funds of 2010-vintage and newer changing hands for 102.95 percent to NAV, according to an earlier Setter report.

“Buyers used to just give them an arbitrary discount because they were fund of funds,” said Setter co-founder Peter McGrath. “But now there are a lot of specialists that focus on this area and a lot of generalists that really like them. They now view them as high-quality indices, as a way to buy an index of the [private equity] market.”

Funds of funds with a vintage date before 2002 are attracting an average top price of 79 percent of NAV. In McGrath’s view, this takes into account the risk of an older fund not being allowed to run its course.

“They [older funds] don’t have as much upside but another dynamic is that when a fund of funds gets beyond 10 years the buyers worry that the manager’s going to liquidate.”

The most sought-after funds of funds are managed by HarbourVest Partners followed by Adams Street Partners and Neuberger Berman, according to the report.

The ranking is based on the number of prime buyers who have expressed an interest in acquiring a fund on online marketplace SecondaryLink, as well as its Setter Liquidity Rating. The Setter Liquidity Rating takes into account demand but also how selective general partners are about who can buy into their fund, McGrath said.