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Funds of funds: Private equity FoFs take off

But could publicly listed private equity funds stymie their development?

Private equity funds of funds are becoming increasingly attractive to investors, with a recent flurry of new products hitting the market. Morgan Stanley announced in June that it had raised $1 billion for its private equity fund of funds. Goldman Sachs is raising funds for a diversified private equity fund of funds to the tune of $1.5 billion. Lehman Brothers is raising $750 million for a private equity fund of funds, and Merrill Lynch is also said to be in the market raising funds.

Bob Caporale, the head of JPMorgan’s private equity fund services, says the fund of funds area is becoming increasingly popular.

An estimated 120 private equity funds of funds are operating, compared with just 10 in 2000. Caporale says: “Asset managers are raising new private equity funds of funds every 12 to 18 months now to keep up with investor demand and the many opportunities to invest in new partnerships.” In response to the growth, JPMorgan launched its private equity fund services business last November to provide fund administration services to managers of private equity funds of funds.

According to one banker, the product has evolved to such an extent that specialist sector private equity funds of funds are already gaining popularity.

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