Funds of Funds: Special Sauce or Dead Weight?
And What the Ares Private Markets Fund (APMF) Reveals About Fees, Incentives, and Real Returns
If you wanted to design a product that looks fantastic on paper, layers fees at every turn, and lets managers book performance long before realizing actual gains… you’d end up with the modern fund of funds.
Today’s guest post takes a closer look at a specific corner of this world: evergreen vehicles that primarily invest in stakes of other funds.
👉 If you missed the evergreens primer, you can read it here:
Here’s what Tim breaks down:
The attractions of fund of funds (FOF)
The pitfalls and costs
The Ares Private Markets Fund (APMF) as a real-world example (LMK if you want a full case study)
Spoiler: the attractions underwhelm, the costs are high, and the pitfalls are big.
-Leyla
👉FOFs can invest in a number of things. Here’s one that invests in real estate funds:
About the author
Tim McGlinn is a veteran investor and founder of The AltView, which critically examines alternative investment opportunities and industry dynamics.
Tim’s writing is available (free) on Substack. You can email him at: tim@thealtview.com or find him on LinkedIn.
The Pitch: Pros of Fund of Funds
In the private markets fundraising frenzy of 2025 investment funds explicitly marketed as funds of funds (funds which invest at least part of their portfolio in other funds) play a starring role.
The case for funds of funds (FOF) investing often includes one or more of the following arguments:
One-stop shopping. FOF represent an easy way to get alternative exposure. This is helpful if you have limited ability to research but expect good things from the asset class.
Improved liquidity vs. traditional methods. Evergreen Private Equity funds, for example, offer periodic liquidity (even if not guaranteed). FOFs make it easier to adjust exposure to an asset class than traditional funds.
Simplicity. Faster reporting, no capital calls, a simpler tax situation.
Access. You may get access to coveted, typically closed funds.
Lower fees. Example: in Hedge Funds, some managers have access to lower fees.
Diversification / reducing the risk of a dud. Historically, some PE funds soar while others bomb.
PE FOF performance has been shown to be less variable than investing in funds directly.
Why the Excitement Right Now?
Two contributing factors for today’s growth are:
1. The J-Curve Advantage
Traditional, so-called “drawdown” funds gather capital once and invest over years.
This results in a J-curve (time vs. return). Since the fund initially shows costs (management fees) but no profits, its early return is negative:
Private equity-focused secondary funds, which are a type of fund of funds, generally invest in other funds that are largely invested, or “drawn down.” Hence, the “J-curve” is minimized or eliminated.
👉 Read more on evergreen funds that focus on secondaries:
Secondary-focused private equity funds increasingly have a perpetual structure; in theory will exist forever. They also accept new capital at regular intervals. As new capital flows in (and it recently has, in spades), it needs to be invested.
2. Immediate Gains
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