Through investing in fund of funds, investors can benefit from the research, selection and management capabilities of a fund of funds manager, as well as from its network of contacts. Moreover, there is not the same need for the investor to establish its own structures as when making direct investments: the investor can benefit from outsourcing these tasks to the fund of funds manager − which performs the work as a trustee on behalf of a number of investors − and can focus on its own core competencies.

At the same time, a fund of funds allows investors to achieve an optimal portfolio construction. The amount that would be invested in a single private equity fund in the case of a direct investment is distributed across a host of different funds when investing in a fund of funds. This is a major advantage of fund of funds: investors are provided with a much higher degree of diversification than with direct fund or company investing. A fund of funds enables investors to place their capital in private equity in a highly efficient manner.

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