THE CHALLENGE
Our client was an industry-leading fund of funds manager who worked with several thousand international investors. FSG had supported their maturation over multiple growth cycles from their entrance into the fund of funds space, beginning with just a few hundred domestic investors and a desire to redefine their service offering. Their opportunity set had transformed with their growth. However, they still faced the typical challenges of a fund of funds manager: fee compression and an inability to raise capital that was not dependent on the fund-raising process of underlying managers. Their existence was a constant fire drill of fundraising activity, while only being able to achieve marginal incremental fee revenue from their investors.
It was time for their next growth cycle, which would be a departure from their historical growth practices. This pivot would require strategic change throughout the organization and intensive operational support from FSG. How could they use their strengths to solve their challenges?
NEW STRATEGIC DIRECTION
OUTSOURCED CFO SERVICES
OUR
SOLUTION
Our client had the vision, and FSG had the execution. We began by structuring and executing a rollup of 10+ single-purpose SPVs into a master-feeder fund complex. This new master-feeder structure was a “hybrid” structure that held illiquid assets, but provided exit liquidity to its investors and was constantly open to new capital. FSG mapped out the operational necessities behind the strategic initiatives, rolled up its sleeves and started driving the organization forward by:
transitioning over 1,000 investors and their investments between the two structures;
collaborating with custodians, auditors, tax preparers, legal counsel, and other service providers to structure and execute the transaction at the fund and investor levels;
creating bespoke investor reporting appropriate for the hybrid master-feeder structure; and
structuring institutional leverage into the master-feeder structure to allow levered access to the new master-feeder structure.
THE RESULTS
Our client can now raise capital on an ongoing basis without being subject to the timing of underlying managers. Investors were able to identify the additional value of pursuing classically illiquid investment strategies via the hybrid structure that provided them with predictable liquidity, and our client experienced increased revenue of over 25% in the initial year of the new strategic approach. Our client continues to grow and expand with the support of FSG, leveraging this same “hybrid” approach across multiple investment strategies today and looking ahead to the next growth cycle.