There are two simple ways of constructing a private equity fund of funds portfolio: topdown,
which is driven by strategy, or bottom-up, which is driven by fund manager selection.
Pantheon’s investment approach tends to be bottom-up, with emphasis on rigorous
due diligence in fund manager selection. However, we include a top-down overlay in
designing our overall investment strategy, particularly with respect to risk aspects.
Pantheon has conducted a quantitative study to understand whether there are inflexion points in the life of a private equity fund where expected value creation and distributions may become negligible relative to total value already generated.