Advantages of a Pathway Fund of Funds
A Pathway fund of funds provides many advantages for investors.
Attractive to Both Existing and New Private Equity Investors
A Pathway fund of funds can be attractive to investors that already have a private equity program. A Pathway fund of funds can complement an investor’s existing private equity portfolio either by serving as the core of the portfolio—which can provide access to high-quality managers, including hard-to-access managers, across a broad spectrum of investment strategies and geographic regions—or as a niche-focused addition to the portfolio, targeting specific strategies and/or geographic regions desired by the investor.
A Pathway fund of funds can be attractive to investors that are just starting to build a private equity program. It normally takes years, if not decades, to build a team that could effectively cover the global opportunity set, but a Pathway fund of funds offers a turn-key solution for accessing high-quality managers, including hard-to-access managers, across a broad spectrum of investment strategies and geographic regions through Pathway’s deep network and long-term experience in the asset class. A Pathway fund of funds also offers the opportunity for a new investor to learn the private equity fund business through a close working relationship with Pathway and to gain insight from seeing which funds Pathway believes would make up a strong-performing portfolio.
Offers Alignment of Interests
Pathway typically commits a meaningful amount of capital alongside its investors in each fund of funds it raises, which reinforces Pathway’s alignment of interest with its investors. And because Pathway makes the same investments at exactly the same time and in the same proportion as investors in the fund of funds, Pathway earns a return that is the same as that of its investors.
Provides Relief from Administrative Burden
Developing and monitoring a successful global private equity program is a time-consuming and resource-draining effort, even for the largest of investors. Through a Pathway fund of funds, however, Pathway is responsible for all facets of the accounting, legal, tax, and other back-office processes, thus relieving the administrative burden on an investor’s time and resources. Examples of the administrative burdens that Pathway handles for its investors include the following:
- Cash flow management, which for a mature private equity portfolio can result in hundreds, if not thousands, of wire transfers
- Correspondence with all underlying fund managers on all investment and administrative matters
- Collection, review, and summarization of each underlying fund’s annual federal and state tax information into a single Schedule K-1
- Execution of all legal documents, including fund commitments, side letters, amendments, and consents
Provides Audited Financial Statements
Pathway’s funds of funds are audited annually, which ensures that all cash flows and other transactions are authentic, reconcilable, and in accordance with generally accepted accounting practices (GAAP). This allows an investor to be confident that the performance being calculated from this information is accurate, timely, and reliable.
Provides Access to Fund Managers That Are Disclosure-Sensitive
Some private equity fund managers refuse to allow certain investors to invest directly in their funds out of fear that sensitive information about their investments will be subject to public disclosure (e.g., FOIA request). A Pathway fund of funds can typically provide such investors access to these fund managers because the fund manager can be assured that certain sensitive information (e.g., portfolio company valuations) can be retained at the Pathway fund-of-funds level and not be subject to public disclosure.