What it is
A fund of funds is a private fund that invests in other funds. Instead of choosing individual companies, real estate or credit deals, the fund of funds manager selects underlying fund managers and spreads commitments among them.
A family office is a private firm that manages the wealth and affairs of one family (a single-family office) or several families (a multi-family office). When people search for a family office fund of funds, they may mean a fund of funds a family office invests in, or a vehicle a family office sponsors to organize its own allocations.
These vehicles are generally offered under exemptions such as SEC Rule 506(b), which prohibits general solicitation, or Rule 506(c), which allows general solicitation but requires that all purchasers be accredited investors and that the issuer take reasonable steps to verify status. Private fund investments are speculative and illiquid and can lose all of their value.
How it’s traditionally been approached
Traditionally, families with significant assets have built private market exposure in one of two ways: selecting individual fund managers directly, or using a fund of funds to have a manager do the selection and monitoring. Each path involves different levels of time, expertise and cost structure.
Some family offices have in-house investment teams that perform their own research on underlying managers. Others rely on outside advisers, consultants or specialized fund of funds managers, particularly when they want access to a range of strategies or want help with ongoing reporting.
Fund of funds structures often involve more than one layer of fees and expenses, and investors typically receive reporting such as Schedule K-1s, with tax treatment depending on individual circumstances. Past performance does not guarantee future results, and no structure removes risk.
How the right fund manager may help
The right fund manager may help a family think through how a fund of funds fits into the broader picture: the family's goals, time horizon, need for liquidity, and comfort with complexity. A good conversation is usually about fit and understanding, not about being pushed toward a decision.
A first conversation is often an educational discussion. A manager may describe their selection process, how they perform due diligence on underlying managers, how they monitor them, and how they report to investors. You may also learn what offering documents are available to review on your own time.
Helpful questions include: How are underlying managers chosen and reviewed? What are all the layers of fees and expenses? What are the liquidity terms and limits? How are conflicts of interest handled? What does reporting look like? Who can participate under the accredited investor rules? Your own licensed attorney, tax professional and financial adviser should review any offering documents.
The bigger picture
Decisions about family wealth are rarely only financial. They can affect relationships, sleep, and the sense of security a household feels. Taking time to understand a structure, rather than rushing, can support peace of mind, and many families find it helpful to involve everyone who will be affected by the decision.
Wellbeing also includes knowing your limits. Being honest about how much illiquidity and uncertainty feels comfortable is part of a healthy approach, whichever path a family chooses. For broader whole-person support, some readers explore resources such as Providers.plus.
Keep in mind
- Private fund investments are speculative and illiquid and can lose all of their value.
- Past performance does not guarantee future results, and nothing here predicts any outcome.
- Participation is generally limited to accredited investors as defined in SEC Rule 501(a), which includes certain income or net worth thresholds, holders in good standing of Series 7, 65 or 82 licenses, knowledgeable employees of the fund, spousal equivalents, entities and family offices with over $5 million in investments or assets, and RIAs and exempt reporting advisers.
- The Hastings Fund is an independent directory and educational resource, not a broker-dealer, funding portal or investment adviser. This is not an offer or solicitation, and not investment, legal or tax advice, so please consult your own licensed advisers.
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Create an investor account →Frequently asked questions
What is a family office fund of funds?
A family office fund of funds is a private fund that pools capital and allocates it across multiple other private funds, in connection with a family office either investing in it or sponsoring it. The aim of the structure is typically diversification across managers and strategies. It remains speculative and illiquid, and it can lose all of its value.
How is a fund of funds different from investing directly in a fund?
A fund of funds adds a manager who selects and monitors several underlying funds on behalf of investors. Investing directly means the investor or their adviser chooses and monitors each fund themselves. The structures differ in effort, access and the layers of fees involved.
Do you have to be an accredited investor to join a fund of funds?
Generally yes, though it depends on the offering and the exemption used. Under SEC Rule 506(c), all purchasers must be accredited and the issuer must take reasonable steps to verify. Rule 506(b) offerings prohibit general solicitation and may have different participation rules, so review the offering documents with your own advisers.
What counts as an accredited investor under Rule 501(a)?
Rule 501(a) includes individuals meeting income or net worth tests, and since the August 2020 amendments, holders of Series 7, 65 or 82 licenses, knowledgeable employees of certain private funds, and spousal equivalents. It also covers entities and family offices with over $5 million in investments or assets, plus RIAs and exempt reporting advisers. Confirm your status with a licensed professional.
What are the main risks of a family office fund of funds?
The main risks include loss of some or all invested capital, limited ability to sell or withdraw, and multiple layers of fees. Performance of underlying funds can vary, and past performance does not guarantee future results. Careful reading of offering documents is important.
How is a fund of funds taxed?
Tax treatment depends on individual circumstances, so it is best discussed with a qualified tax professional. Investors in partnership-style funds commonly receive a Schedule K-1, which can arrive later than other tax forms. Some underlying investments may involve provisions such as QSBS under Section 1202, but whether any applies depends on the facts.
Educational resource. The Hastings Fund shares general information and connects people with independent fund managers. It is not professional advice. Talk with a qualified professional about your own situation.