Destination: Shenzhen

The fabulous prospect of Fund of Funds

Recently demand for a good number of private equity funds of funds (FOF) is going strong in mainland China. Between 1 January 2021 and 19 December 2021, a total of 2,322 private equity FOF were issued, compared with 1,303 in 2020. Private equity FOF are investment vehicles that comprise various fund offerings and sales channels. Compared with the US and Europe, China is a late starter in the realm of FOF and therefore there is great room for growth in the future.

The growing popularity of private equity FOF has something to do with their inherent advantages. For one thing, FOF can accommodate a wide variety of assets and are more capable of mitigating the impact of market fluctuations, thus leading to relatively stable returns. Besides, there are fewer investment restrictions with FOF and so they allow a broader range of investment strategies and more sub-fund options, thereby increasing returns.

All high-quality private equity FOF are able to attract investors, have a solid foundation of data and are supported by advanced technology, including artificial intelligence (AI). AI can quickly integrate data and make sound judgments in accordance with market trends. It can also be integrated with digital office, simplify the complex processes of private investment institutions, boost work efficiency, and help investors make good decisions. All this is especially important for FOF as they can take full advantage of digital technology to optimize management of investment portfolios.

Currently, most FOF managers in China manage not only FOF but also different types of asset management products. That may undermine the neutrality of the FOF managers. Meanwhile, many FOF products involve one type of assets. All these mean investment portfolios need to be monitored by digital means. AI can be used to handle investment portfolios, determine the make-up of the portfolios in light of given market patterns, assess the risks of different investment products, and maximize returns.

SMP Net, a cloud platform independently developed by Linnovate Partners, uses data bridging technology to connect GPs, LPs and other related parties. It adopts blockchain technology to achieve seamless transmission of encrypted data. The platform can effectively support employees of private equity fund houses and venture capital companies when they handle the tedious and complicated tasks of manually filling in e-forms and dealing with other low-tech systems. Eventually, employees’ work efficiency and ROI can be significantly improved. Private equity FOF enjoy an additional advantage from SMP Net - they can use the platform to create illustrations and monitor related data in real-time. For years, Linnovate Partners has been providing clients with FOF-related services and solutions.