“Iran Fara Bourse deputy admission and issuers announced that the very first Iranian VC Fund of Funds will be launched on the exchange soon. Apparently, the SEO has been ratified the sample prospectus and AoA of this suggested FoF and the vehicle is to be established as a limited partnership with the sole purpose of investing in other Iranian listed VC funds and not to have any managerial intentions there.”
In this short article, we are about to briefly discuss more on the whole Fund of Funds idea and answer the question that what will the added value they may have for the Iranian alternative investment ecosystem? But first, we have to get more acquainted with the principals of a FoF. Reliable sources define the FoF as below:
“A fund of funds (FOF), aka a multi-manager investment, is an investment strategy/vehicle in which a fund invests in other types of funds. This vehicle invests in a portfolio that contains different underlying assets instead of investing directly in bonds, stocks and other types of securities. These underlying assets can be also other private equity vehicles or venture capital funds”
Although the details might be varied, however, the general structure of a FoF can be demonstrated as below:
There are some benefits using FoF strategy/vehicle that can be listed as below:
- Professional Fund Management Services: by far, having a professional manager, like those in Mutual funds, is considered as the most important benefit of using FoF instead of a direct approach. Like equities and bonds, alternative investments have their very own administration and technical issues to deal with and it would be golden if a white-collar handle things while the investors are just worried about asking the manager for a report!
- Manager Selection: Manager selection is certainly the foremost area of expertise of a professional FoF structure. A sophisticated due diligence process, financial and operational understanding and access to the top funds are considered as the main competences of a traditional FoF.
- Portfolio Diversification for the Purpose of Return Enhancement and risk reduction: No risk-averse long-term investor would pick only one fund in a sub-segment, but choosing all conceivable funds in a sector may circumvent top quartile returns. For an investor with a given return target, it is wise to diversify the portfolio to increase the probability that this return is actually achieved.
- The Relative Value Assessment:
- Strategic asset allocation;
- Investment level steering
- Relative value assessment for various private equity/venture capital investment opportunities;
- The Relative Value Assessment for Investment Styles;
- The Relative Value Assessment for Regions and Financing Stages;
- And …
Bottom line, considering Iran’s case, it seems that the idea of FoF basically is to pool funds from different parts of the administration, university endowments and pension funds which can ultimately be a noticeable figure helping the thirsty startup ecosystem of Iran along with feeding the knowledge enterprises better the before. Eyeing the fact that economic sanctions snapback would cut the current weak stream of funding from outside world, let alone the hopes for massive investments, establishing said structures could help the wishful and bright community of Iranian young entrepreneurs and bring hope amid the ecosystem once again.
Iranian VC funds do not have a long pragmatic history and they are limited in resources. It is widely believed that unless something out of order happens in establishing the FoF, it could be the drive that Iranian alternative investment ecosystem needs to grow and make VC/PE/Startup investment culture reach amid the nation. Any further information, hopefully, to be released by IFB on all the practicalities, will be covered accordingly.