Dividend Capital
Fund of Funds
What is a Fund of Funds?
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A fund of funds is an investment fund that uses an investment strategy of holding a portfolio of other investment funds rather than investing directly in shares, bonds or other securities. There are different types of fund of funds, like mutual fund of funds, hedge fund of funds and private equity fund of funds. Our fund of funds is a private equity fund that, instead of being used to make direct investments in companies, is distributed among a number of other private equity fund managers, who in turn distribute the capital to companies. |
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With public equities, investors buy ownership in shares/stock of a listed company. With private equity, investors hold stock in unlisted companies. |
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Private equity investments may be able to complete a more extensive due diligence process through greater access to proprietary information |
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Private equity investors may have more investment control, taking part in investment committees or serving on boards |
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Private equity investors tend to be operators vs. passive observers, promoting a value-add investment philosophy |
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The time horizon for private equity investments is typically for the longer term |
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Private equity has flexibility in exit options across initial public offerings, mergers & acquisitions and recapitalizations |
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Private equity can offer investors the potential for: |
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Higher long-term return and risk diversification |
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Returns historically above those available in the public markets |
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Investments made in companies at the start of the anticipated period of rapid growth | ||
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Potential premium for illiquidity |
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Portfolio diversification |
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Many factors that drive returns to private equity investors are unrelated to what is happening in the public markets |
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Ten Year Annualized Returns Historical Comparison (01/01/1995 - 12/31/2004)  |
Investing in Private Equity
There are a number of ways to invest in private equity:
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Direct investment into private companies |
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Private equity funds |
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Private equity fund of funds |
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It is important to note that investing in real estate entails certain general risks, including general economic and social climate, regional and local real estate conditions, the supply and demand of properties, the financial resources of tenants, competition for tenants, property management, changes in building, environmental, tax or other applicable laws, changes in real property tax rates, changes in interest rates and negative developments in the economy. These risks may be magnified due to volatile market conditions, like the recent decline in the broader credit markets related to the sub-prime mortgage dislocation. Investing in global real estate entails certain additional risks, including foreign economic, political, regulatory and social risks, currency and exchange rate risks, ability to enforce legal rights, undeveloped infrastructure risks and absence of regulation of a portfolio fund risk. |
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Source: Private Equity Intelligence, Ltd., The 2007 Private Equity Real Estate Review. This report examines the performance of the private equity real estate industry, including analysis on the profits returned to LPs, performance by investment strategy, performance against other types of private equity funds and the effect of manager experience. Analysis is based on a sample of more than 1,070 real estate funds, including information on the net returns to LPs for a total of 375 funds. This index contains securities that are highly illiquid. Investors cannot invest directly into any index. |
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The FTSE NAREIT All REIT Index includes all REITs that trade on the New York Stock Exchange, American Stock Exchange and NASDAQ Global Market List. This index contains securities that are subject to market risk. Investors cannot invest directly into any index. |
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Source: Thomson Venture Economics. The Private Equity Performance Index is a pooled return based on the quarterly statistics from Thomson Venture Economics’ Private Equity Performance Database analyzing the cashflows and returns for U.S. venture capital and private equity partnerships. Sources are financial documents and schedules from limited partners and general partners. All returns are calculated by Thomson Venture Economics from the underlying financial cashflows. Returns are net to investors after management fees and carried interest. This index contains securities that are highly illiquid. Investors cannot invest directly into any index. |
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The S&P 500 Index is an unmanaged index of the 500 largest stocks (in terms of market value), weighted by market capitalization and considered representative of the broad stock market. This index contains securities that are subject to market risk. Investors cannot invest directly into any index. |
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The NCREIF Property Index (NPI) is a quarterly time series composite total rate of return measure of unleveraged investment performance of a very large pool of investment grade, non-agricultural, income-producing properties acquired on behalf of tax-exempt institutions and held in a fiduciary environment. This index contains securities with limited liquidity. Investors cannot invest directly into any index. |
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The Lehman Brothers U.S. Treasury Bellwether 10-year Index consists of 10-year bonds issued by the U.S. Treasury. Investors cannot invest directly into any index. |
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The U.S. Consumer Price Index is an indicator of inflation that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food and transportation. The Consumer Price Index is not an investment vehicle, but rather a gauge of inflation. Investors cannot invest directly into any index. |
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The U.S. Treasury Bellwether 3-month Index consists of treasury securities with maturities of three months or less. Treasury securities are backed by the full faith and credit of the U.S. government. Investors cannot invest directly into any index. |