VC Fund of Funds: The Market
We analyzed 130+ Funds of Funds backing global VC managers and unpacked how their DNA, mandates, and LP networks really work
Over the past few months, I've been spending a lot of time talking to emerging managers. One thing I kept noticing was a sharp uptick in inbound from GPs who are either actively raising or about to hit the trail.
I assumed it was just my own proximity to the space, but then more people around me started saying the same thing – even as the hard data insisted that the number of new emerging managers coming to market was still at a multi-year low.
Three weeks ago at our closed-door event for EMs and LPs in San Francisco, it clicked. More than 50% of the room was actively fundraising. And the question I kept hearing, in different forms, was the same: what actually triggers a first close for an emerging manager?
Beyond pitching techniques and GP artifacts, there is an ultimate catalyst for emerging manager fundraising: a strong anchor investor. In my view, that is the Fund of Funds (FoF).
Why? Look at who backs emerging managers (EMs). Historically, it’s been family offices and HNWIs with flexible check sizes. Meanwhile, the EM segment is too early-stage for large endowments and institutional giants. They currently prefer concentrated bets on mega-platforms selling "AI ETF products" with household names. It’s the perfect way to hedge career risk: “If a $10B fund underperforms, it’s not my fault.”
In this gap, FoFs are the primary institutional players. As professional intermediaries, they handle the sourcing, diligence, and access that other LPs won't do. In a barbelled market, their core bet is that emerging managers generate real alpha.
This is precisely why, at Murph Capital, we asked ourselves: how is this market actually structured? How big is it, what types of players operate within it, and where is it all heading?
Below is Part 1 of our global research on the Fund of Funds market. In this section, we aim to review the key players, examine their global distribution, trace how they have evolved, and unpack where they came from.
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The Macro Landscape
Understanding who actually backs fund managers requires looking past the usual suspects. You need to capture the full market landscape, tracking every player with real, consistent exposure to the VC asset class at the fund level.
So we spent weeks building this dataset manually. By combining public sources (from SEC filings to LP disclosures) with direct outreach to our network of allocators, we focused on a single objective: identifying as many fund of funds actively investing in venture.
For each firm, we looked at:
The firm itself: when it was founded, where it’s based, how it’s structured
The team: who runs it and what their background was before FoF
The portfolio: which funds they’ve backed
Their LPs: who provides the capital behind them
Their public activity: press, podcasts, social media, recent fund raises
We intentionally excluded several widely cited yet frequently misleading metrics: AUM, precise funds under management, and specific portfolio GP positions. They're often incorrect, and nearly impossible to validate.
What we found: 132 active fund of funds with meaningful venture exposure. They fall into 4 distinct archetypes, and the biggest mistake a GP can make is treating them as interchangeable. Each operates under a totally different mandate, answers to a different LP base, and dictates a completely unique relationship with emerging managers.
Emerging Manager Focused (33 funds)
These are dedicated capital programs built solely to back first-time and early-stage GPs. This is the only cohort where backing new talent is the core product, rather than a side sleeve or a token allocation bucket. They deeply understand the structural risk profile of a Fund I because they deliberately chose this sandbox to chase maximum alpha.
Classic FoF (40 funds)
Traditional multi-manager platforms allocating across both legacy and new venture funds. For most of them, emerging managers are a tiny slice of a massive, highly diversified portfolio – if they appear at all. Breaking through here is largely a political exercise, because you are essentially relying on finding a lonely “champion” on their investment team who is willing to burn internal career capital to defend your thesis.
Hybrid FoF (30 funds)
Vehicles that blend primary LP fund commitments with direct and co-investment deals. Most initially started as traditional venture funds investing in startups, later building out a FoF program to institutionalize their deal pipeline. In some cases, their behavior as an LP might be unpredictable, because a fund commitment here never lives in a vacuum and constantly competes with their direct deal flow for internal mindshare, attention, and capital allocation.
Government-Led (29 funds)
Sovereign wealth funds, public-sector allocators, and development banks. Collectively, they sit on a massive share of global FoF capital, but for the average US or European emerging manager, they are structurally a black box. Rigid geographic mandates, crushing reporting requirements, and political policy objectives create nearly insurmountable barriers to entry for an early-stage vehicle.
Naturally, these lines can blur. Categorizing the market into 4 neat buckets implies a level of clean separation that doesn’t always exist in reality, especially since we are operating with imperfect information. This distribution is ultimately our own – a subjective classification built entirely on what can be gleaned from public data.
But the practical implication is straightforward: when most emerging GPs raising Fund I or II talk about “approaching FoFs,” they are (whether they know it or not) targeting a universe of roughly 30+ firms which is only 25% of all FoFs.
The other ~100 players certainly exist, but in my experience, they are rarely the right targets for first- and second-time vehicles (excluding some hybrid and classic FoFs with well-developed program or strong appetite for EMs) . These larger, institutional FoFs typically wait until Fund III, when they can comfortably underwrite a strategy based on a visible track record and mature market signals.
Crucially, this isn’t even about their risk tolerance – it is a pure operational constraint. Given their massive asset pools, larger FoFs simply cannot afford to manage a fragmented portfolio of 10-15 small funds. Even if they were to come in as an anchor investor with a 30% allocation on your cap table, the absolute dollar check would still be too small to justify their internal overhead and ongoing monitoring costs.
The Geography of Concentration
When you look at a map of these 132 Funds of Funds by country, the initial impression is one of a truly global market: 24 countries representing nearly every continent. But this headline numbers are highly deceptive. Beneath this superficial geographic breadth lies a brutal structural concentration that directly dictates a GP’s access to capital.
The United States
The US remains the undisputed epicenter of global venture capital, and this gravitational pull replicates itself at every single tier of the ecosystem including Funds of Funds.
The baseline: 76 out of the 132 active FoFs in our database are based in the United States – accounting for 58% of the entire global market.
The alpha concentration: What strikes me even more is that out of 33 dedicated Emerging Manager-focused FoFs, 25 are American. That is a staggering 76% of all specialized players concentrated in a single country.
This asymmetry is no accident. In 2025, the US controlled roughly 64-70% of global venture capital according to CB Insights and Crunchbase – a massive leap from its historical baseline of 47–48%. Logically, funds of funds naturally follow GPs, GPs follow capital and talent, and today, all of those vectors converge squarely in the United States.
Why this concentration exists is a topic for a separate discussion. But what I can say with certainty is that for an American emerging manager, this ecosystem provides an abundance of specialized LPs, a highly competitive yet mature fundraising environment, and relatively low friction. Often, a single warm intro is all it takes to get into the right room.
For everyone else, this represents the first major structural hurdle – even when the investment mandates of many active US FoFs technically cover Europe and emerging markets on paper.
China
China ranks second in our database by FoF count, with 22 firms. However, 12 of them are government-led, and a mere 2 are dedicated to emerging managers. For a Western GP, this is simply not an addressable market – it is an entirely isolated ecosystem operating by its own distinct set of rules.
The 2015–2018 period marked the peak expansion of these government guidance funds across China. This boom was catalyzed by sweeping state directives, relaxed local regulations, strict capital controls on alternative spending, and a clear herd mentality among regional officials. The structural push was formalized in January 2015, when Premier Li Keqiang personally led a high-level state meeting to initiate national-scale government guidance vehicles.
Between 2015 and 2021, roughly 2,000 of these state-backed guidance funds were launched, collectively managing an asset pool equivalent to nearly £850 billion. Today, state funding accounts for approximately 30% of all PE/VC capital raised within China.
While the scale of this capital is massive, it comes tied to rigid political mandates, strict geographic restrictions, and non-negotiable requirements to invest in specific strategic sectors outlined in Beijing’s five-year plans. By definition, a Western GP lacking a localized onshore presence, deeply entrenched network, and an intimate understanding of the domestic political landscape is not the target audience for this capital.
To me, this creates a stark paradox: as USD-denominated funds exit the region and private capital undergoes a massive retreat, the market is becoming increasingly dominated by state actors. This shift forces the remaining players to adapt to a radically different landscape. Ultimately, the Chinese venture capital market is turning inward, becoming more insular rather than more open.
Europe
Europe is represented by 14 countries in our database, yet its share of the global market accounts for just 16% of all FoFs. Furthermore, emerging manager-focused funds make up only around 5% of the total pool – or roughly 18% of all specialized vehicles in this category.
Why is this ratio so low, despite growing deal volumes and rising exit values across the region?
Several key reasons drive this structural disparity:
Geographic Structure. Europe is not a single market, but a fragmented landscape of 27+ distinct venture ecosystems, each with its own regulatory regime, LP base, and investment culture. Unlike the unified US market, a European solo GP faces immense structural friction, forced to build a pan-European LP base before even establishing a proven track record, all while navigating compliance across more than 20 jurisdictions. This regulatory and cultural fragmentation directly shapes the domestic sources of capital.
Sources of Capital. European pension funds allocate a mere 0.12% of their assets to venture capital, compared to 10.4% for US public pension funds. Concurrently, government and quasi-government entities step in to fill the void, collectively accounting for roughly 1/3 of all LP capital in European VC funds – contrasting sharply with just 4% in the US, where pension funds and endowments dominate.
Furthermore, European LP markets are structurally reliant on state backing by design. However, the state does not build specialized emerging manager vehicles. Instead, they launch development vehicles, strategic innovation programs, and co-investment platforms – addressing the problem of VC access broadly, rather than capital access for first-time managers specifically.
Regulatory Fragmentation. As noted above, Europe is geographically fragmented and layered with country-specific implementation of pan-European rules. That fragmentation is reinforced by stricter regulatory regimes such as Solvency II and IORP, as well as narrow reverse-solicitation rules that make cross-border fundraising more complex than in the US.
Exit Recycling. The dynamics of liquidity events exacerbate the issue. At first glance, the headline numbers look promising: European exit value reached €69.8B in 2025, marking the second-highest record on record after the anomalous peak of 2021 (€171.7B). The total number of exits is also rebounding, climbing from a low of 1,020 in 2024 to 1,129 in 2025. However, the structure of these exits matters just as much as their volume. Acquisitions consistently account for 55-70% of exit value each year, and the largest transactions typically involve American buyers (Darktrace and Exscientia cases are great examples). Consequently, capital flows out of the ecosystem rather than recycling back into it, making it hard to generate a domestic LP base.
Fundraising. The number of new VC funds launched in Europe plummeted from a peak of 576 in 2022 to just 167 in 2025 – a massive 71% collapse. Total capital raised shrank from €39.8B to €12.6B over the same period. Meanwhile, aggregate deal value stabilized at €62–68B between 2023 and 2025 (surpassing any pre-pandemic year), with the total deal count holding steady at over 10,000+. So deal activity hasn't slowed down, but the pool of funds is shrinking. Capital is concentrating in the hands of fewer, well-established managers who are leading larger rounds into a smaller cohort of companies – which signals a structural deficit in the very infrastructure meant to support them.
Can things change? I believe so, and the shift is already underway. However, the talent flywheel is outpacing the capital flywheel by a significant margin.
From a macro perspective, the primary catalyst for this shift is global geopolitical realignment. This includes Europe’s consolidation driven by US anti-globalization policies and tariff wars, alongside the existential threats on the “eastern front.”
Even before these macro shocks fully registered (following the adoption of a €2.1B FoF strategy), the European Commission enacted the Savings and Investments Union (SIU) on March 19, 2025, introducing concrete measures to accelerate the venture ecosystem.
Besides that, European startups produced 27 new unicorns in 2025 – the third-highest annual total on record, after only the boom years of 2021 and 2022, according to Sifted. This includes breakout companies like Lovable which reached a $1.8B valuation just 8 months after launch, making it one of the fastest unicorn stories in European history and ElevenLabs, the Warsaw-founded voice AI company that reached an $11B valuation by early 2026.
Today, alumni from these companies (and others, like Spotify, Klarna, Mistral, Revolut) are founding new ventures and writing their first angel checks, while initiatives like Project Europe are actively driving cross-border consolidation at the ecosystem level.
Naturally, the success of these startups triggers a chain reaction for the funds that backed them. ElevenLabs’ early investors were Prague-based Credo Ventures and London-based Concept Ventures – small European seed managers that took a bold bet on them during their early funds. This bet paid off: in March 2026, Credo Ventures closed a new €86M fund, heavily catalyzed by the ElevenLabs windfall. Speaking with numerous European LPs recently, the positive sentiment surrounding this specific fund has been overwhelming.
The talent flywheel doesn’t stop at angel checks. It breeds the next generation of investors. The great example is Carles Reina – an early employee at ElevenLabs who has already launched Baobab Ventures – a $15M solo GP fund backed by premier institutional FoFs like Cendana Capital and Isomer Capital. A single breakout company has effectively minted a new GP, drawing sophisticated US and European emerging manager-focused FoFs toward European talent.
Given that venture capital is fundamentally an industry governed by signals and consensus, this playbook is being replicated across the region. A new wave of operator-led funds and specialized allocators is emerging to back managers like Baobab. Over the past quarters alone, we’ve seen the launch of new fund of funds like Allocator One, Firm, Vineyard, and Emergence Ventures.
The flywheel is accelerating.
Middle East & Africa
A small but accelerating cluster: the UAE, Saudi Arabia, Israel, and South Africa. Each of these countries accounts for a single Fund of Funds in our database. Crucially, all of them emerged within the 10 years and each reflects a fundamentally different strategic motivation. So, let’s break down each story:
Saudi Arabia. Jada is a $1.07 billion vehicle launched in late 2019 under the institutional umbrella of the Public Investment Fund (PIF). It is a pure, programmatic manifestation of Vision 2030, built to catalyze a domestic venture ecosystem from scratch.
To date, they have backed over 39 venture and PE funds deploying roughly $300 million into managers like Seedra Ventures and Artal Capital. But the vital insider nuance here is understanding capital intent. Jada’s mandate is strictly, unyielding localized.
This is developmental capital earmarked for GPs who are systematically building onshore or scaling operations directly into the Kingdom. It shouldn't be conflated with the macro trend of tier-one global mega-brands making cyclical pilgrimages to Riyadh simply to siphon off liquidity when Western capital markets freeze up.
UAE. The Dubai Future District Fund (DFDF) operates as an evergreen $270 million (AED 1 billion) vehicle anchored by DIFC and the Dubai Future Foundation.
Structurally, it’s a hybrid: a rigid 50/50 split between primary LP fund commitments and direct startup co-investments, weaponized to drive Dubai’s D33 economic agenda.
By the close of 2024, DFDF had scaled its footprint to over 190 direct portfolio companies and 12 FoF allocations, effectively anchoring more than $1.65 billion in aggregate capital commitments.
For an emerging GP, this hybrid setup means DFDF isn’t just underwriting your fund – they are actively looking over your shoulder to co-invest in your breakout winners, making them an incredibly potent, yet highly strategic partner.
Israel. Israel is a different story altogether. In 2021, the country attracted $28,000 in venture capital per capita – compared to $1,000 in the US. Globally, Israel ranks 2nd in VC investment per capita and 1st within EMEA, and has produced the 4th highest number of unicorns in the world.
Yet our database contains only one Israeli FoF – Vintage Investment Partners, which long ago outgrew its regional mandate and now operates as a global platform.
I think the explanation is actually pretty simple: the Israeli VC market is small enough and tight enough that major LPs just invest in it directly. The intermediary layer never became necessary, because the network already does the job.
The Evolution of the FoF Market
But before we go deeper into who they are and how to reach them, it’s worth asking a question most GPs never think to ask: when did this market actually come into existence?
Funds of funds do not appear by accident. Each generation of FoFs is a direct response to a specific gap in the capital market. This gap is typically created by macro conditions, regulatory shifts, or structural changes within the venture capital industry itself. To understand why a FoF emerged in a particular year is to understand its DNA, its mandate, and its core attitude toward emerging managers. So we split all FoFs into 4 groups.
Wave 1 (1983–1999): The Institutional Pioneers
It all began with a single regulatory catalyst: the 1979 amendment to the Employee Retirement Income Security Act (ERISA). Prior to this shift, US pension funds were effectively barred from investing in venture capital, as the underlying risks were deemed incompatible with fiduciary duty. The amendment unlocked a massive pool of net-new capital, allowing pension funds to allocate a small fraction of their assets to alternative asset classes, including venture capital.
The impact was explosive:
In 1978, when $424 million was invested in new venture capital funds, individuals accounted for the largest share at 32%, while pension funds supplied just 15%. 8 years later, when more than $4 billion was invested, pension funds accounted for more than 50% of all contributions.
Pension funds, university endowments, and insurance companies were suddenly desperate for venture capital exposure – yet none of them possessed the dedicated teams or internal infrastructure required to pick underlying managers directly.
This exact supply-demand mismatch gave birth to the foundational logic of the Fund of Funds: a professional intermediary who screens and selects VC funds on your behalf, diversifies structural risk, and secures access to elite, oversubscribed vehicles that remain closed to newcomers.
Wave 2 (2000–2009): The Institutionalization of VC
The 2000 dot-com bubble destroyed naive optimism, but it didn’t destroy the asset class – it cleansed it. Post-crash, venture capital began to be perceived as a serious institutional discipline, defined by its own analytics, rigorous due diligence, and sophisticated portfolio strategies.
This period saw the emergence of entirely new types of structures:
Industry Ventures (2000) – a hybrid model blending fund of funds allocations with direct investments and secondary market strategies.
Accolade Partners (2000) – one of the absolute pioneers to systematically back emerging managers as a core strategy.
TrueBridge Capital Partners (2007) – built entirely around the thesis that maximum alpha is generated by smaller, under-the-radar funds, much like Founders Fund and Thrive Capital were in their early cycles.
As for the government-led initiatives of that era, such as the Hellenic Development Bank (2000), NZGCP (2002), Ohio Capital Fund (2005), and the Korea Fund of Funds (2005), alongside the EIF expanding its mandate and Teralys Capital (2009) launching in Quebec – they all shared a singular logic.
Unlike the US, these governments lacked massive pools of private domestic capital willing to take bets on unproven founders. The FoF structure allowed them to deploy state budgets through market-driven mechanisms – retaining high-level political alignment on strategic priorities while delegating underlying manager selection to professional allocators.
Yet, “emerging VC” as a distinct category still did not exist. The venture capital ecosystem of the late 1990s and early 2000s comprised a fraction of the funds we see today, the term itself was unheard of, and the vast majority of seed-stage investing was handled by angel investors. Crucially, without a distinct category of GPs requiring a specialized LP base, the product itself had no reason to exist.
Wave 3 (2010–2019): The Rise of the Specialists
In 2012, the Kauffman Foundation published a groundbreaking report that shook the entire venture industry. Analyzing two decades of data across nearly 100 venture funds, the foundation uncovered a harsh reality:
Since 1997, more capital had been poured into venture funds than had been returned to investors.
Furthermore, the majority of funds with over $500 million in AUM failed to return even a 2.0x net vehicle yield after fees.
Cambridge Associates later validated the Kauffman hypothesis and took it a step further, demonstrating that first-time and emerging managers accounted for 40% to 70% of the value creation within the top 100 venture deals over the preceding decade. So this became the intellectual foundation for an entirely new class of LPs.
When Michael Kim launched Cendana Capital in 2010, he pioneered an entirely new asset category: Cendana was the first Fund of Funds constructed solely around the thesis that Fund I and Fund II managers generate the highest alpha, provided you possess the capability to identify them before the broader market does.
Data from Preqin subsequently corroborated this: vehicles under $250 million consistently demonstrated superior net IRR compared to their larger counterparts. This performance gap was most pronounced in the sub-$100 million segment – the precise sandbox where most emerging managers operate. Crucially, this outperformance held steady across various market cycles, including the challenging macroeconomic environment of 2008–2012.
And the underlying structural logic is elegant in its simplicity (more on that in the next essay):
Smaller funds require significantly smaller exits to return the fund.
Concentrated position sizing amplifies the impact of breakout winners.
Entry valuations at the pre-seed and seed stages remain highly disciplined.
Concurrently, the 2015–2018 window marked the global peak for new government-led Funds of Funds. As noted above, platforms like China's strategic guiding funds, Europe's expanded EIF programs, and Saudi Arabia's Jada emerged not to chase emerging managers, but to serve macroeconomic policies. Operating as institutional cornerstones, they leveraged the master "mother fund" structure to catalyze domestic VC markets and drive state-prioritized innovation.
Wave 4 (2020–Present): The New Guard
The fourth wave of Fund of Funds formation didn’t happen simply because the market was running hot. Bull markets trigger activity, but they don’t create entirely new institutional categories.
What occurred between 2020 and 2022 was driven by deeper, structural shifts. 3 independent forces converged at a single point, creating conditions that had never existed before. And then, a fourth force emerged – one that might turn out to be the most durable of them all.
Force 1: The Previous Generation Just Proven the Thesis
Before anyone could rationally invest in an emerging manager-focused FoF, someone had to prove that backing emerging managers actually worked. That proof arrived quietly in the form of performance reports right as the fourth wave was beginning.
Cambridge Associates data shows that funds from the 2014–2016 vintages were 6 to 8 years old by 2020–2022, squarely in their prime return-generation window, and had already delivered compelling results to their LPs:
The 2014 vintage delivered a pooled IRR of 18.90% / TVPI of 3.25x
The 2015 vintage delivered a pooled IRR of 16.51% / TVPI of 2.66x
The 2016 vintage delivered a pooled IRR of 17.53% / TVPI of 2.54x
These were the numbers sitting in LP performance reports when allocators were deciding whether to back a new emerging manager FoF in 2020 or 2021.
But the aggregate vintage data hides something more interesting. Cambridge Associates research on US VC funds by Net TVPI, across every vintage from 2004 to 2016, shows:
Fund I and II vehicles appeared among the top 10 performers in virtually every single vintage year – systematically, across more than a decade of data
From the 2012 vintage onward, new and developing managers were outperforming established platforms at the very top of the distribution, cohort after cohort
By 2020, these bets matured into some of the highest yields across the entire asset class. LP investment committees looked at their portfolios and no longer questioned whether the emerging manager thesis could work because the DPI and IRR metrics spoke for themselves. The category had earned institutional credibility, which is precisely what makes net-new capital vehicles viable in the first place.
This is the least obvious, yet most critical driver of the fourth wave. The Funds of Funds that emerged between 2020 and 2022 were a rational institutional response to a playbook that had just been validated by a decade of realized returns.
Force 2: Macro Amplified Everything
The proof arrived at an unusually receptive moment. In 2020–2021, near-zero interest rates fundamentally altered LP calculations. Fixed income yielded next to nothing and public equity multiples were severely stretched. Alternatives (and venture capital in particular) looked essential for portfolios chasing real inflation-adjusted returns.
Data from PitchBook captures the sheer scale of this shift:
Global VC deal value surged from $175.5 billion in 2020 to $358.1 billion in 2021 – effectively doubling in a single year.
Concurrently, aggregate exit value reached an unprecedented $865.1 billion in 2021, a high-water mark that has not been matched since.
LP confidence in the asset class hit a generational peak, and crucially, this confidence was anchored by actual cash distributions (DPI) rather than just paper markups (TVPI).
For Fund of Funds formation, this macroeconomic backdrop unlocked a very specific dynamic. LPs who had previously sat on the sidelines of the emerging manager ecosystem (interested but hesitant) suddenly found themselves in an environment where historical returns were strong, macro tailwinds were overwhelming, and social proof was everywhere. The psychological barrier to committing capital to a new, specialized vehicle was lower than ever before.
Force 3: The Explosion of New GPs Created Demand for New Specialists
According to Pitchbook, by 2021–2022, the volume of net-new venture firms reaching the market ballooned to a scale never seen before:
The number of first-time funds climbed to 461 in 2021 and peaked at 478 in 2022 – more than doubling the 215 funds recorded in 2016.
Concurrently, aggregate capital secured by these first-time vehicles reached an unprecedented $24.3 billion in 2021.
This sudden influx of new GPs created a distinct operational challenge that had never existed at this scale: how can a thoughtful LP efficiently navigate such a fragmented market? The universe of Fund I and Fund II managers became far too vast and heterogeneous to evaluate without deep, specialized focus.
The logical market response was the emergence of dedicated intermediaries – Funds of Funds whose sole operational mandate is to identify, underwrite, and back elite emerging managers, saving institutional LPs from having to build that discovery infrastructure themselves.
Force 4: AI as a Generational Opportunity
While the first three forces were beginning to decelerate, the fourth wave of Funds of Funds was already forming. In November 2022, the release of ChatGPT triggered an entirely new, independent flywheel. This event went far beyond altering the conversation around artificial intelligence and it fundamentally shifted how LPs, GPs, and founders conceptualized the sheer scale of the market.
The impact was immediate and measurable:
Between 2022 and 2023, global venture funding for generative AI skyrocketed from $2.8 billion to $15.3 billion. This represented a massive leap (growing from roughly 2% of all AI-related VC investments to over 12%) firmly aligning with the post-ChatGPT market paradigm.
By 2025, AI and ML deals accounted for 63.5% of all US VC deal value while representing 41.4% of deal count. By Q1 2026, that gap widened further: 88.8% of all VC deal value went to AI.
For sophisticated market participants, the signal was hard to ignore, but the implication was more specific than it appeared. If major technological cycles play out over decades, we are currently in year 2 or 3 of what could be a 20 or 30-year wave. The market is only beginning to fragment.
That fragmentation is the critical variable. As AI diffuses across industries, thousands of startups will emerge every year and thousands will fail. The winners will be scattered across verticals, geographies, and technical layers that no single investor can monitor comprehensively, so the structure of the exposure matters more than the exposure itself.
Two approaches dominate.
The first is to concentrate capital in mega-platforms – the established firms with the brand, the LP relationships, and the balance sheet to participate in the most capital-intensive rounds. This is the strategy that funded OpenAI, Anthropic, and the foundational model layer.
The second is to treat emerging AI-focused managers as a distributed search mechanism – purpose-built funds with narrow theses, deep community networks, and access to deals that large platforms structurally cannot reach at the seed and pre-seed stage.
The FoF that understood this distinction in 2023 and 2024 began constructing portfolios accordingly: backing emerging managers hunting for AI deals not as a diversification play, but as a deliberate bet on the part of the market where information asymmetry still exists.
The Meta-LPs: Who Backs the FoFs?
Before parsing what the data explicitly reveals, it is only fair to establish a foundational caveat regarding what it systematically conceals. LP relationships within private fund management remain among the most closely guarded secrets in the financial architecture, largely because the vast majority of Funds of Funds deliberately choose never to publish their underlying investor rosters.
While a fraction of these relationships occasionally surfaces via victory-lap press releases during final fund closures, or becomes traceable through the mandatory public disclosures of public pension funds and university endowments legally bound to report their alternative allocations, the remaining architecture of the market is kept opaque by design
Of the 374 LP relationships in our database, we classified disclosed relationships across 73 FoFs into 12 LP categories. What matters here is less the taxonomy and more what it reveals: the LP behind a FoF largely determines which managers that FoF can actually back.
Classic FoFs: The Pension Product
In our database, Classic FoFs carry the highest concentration of pension capital – 37 distinct pension fund LP entries, the highest absolute figure across all four buckets. Concurrently, they hold 42 corporate LP entries. Together, these two asset pillars explain the entire operational logic behind how a Classic FoF behaves as an investor.
To understand what this means for emerging managers looking to raise from them, you need to unpack two core dynamics:
The Asset Model. A Classic FoF is engineered as a professional, institutional one-stop-shop for massive allocators. They deploy capital across multiple parallel strategies and asset classes – private equity, real estate, hedge funds, and VC. These are professional allocators picking the jockeys, who in turn pick the horses, and in this setup, a Classic FoF is the ultimate pension product: broad diversification, a single counterparty, and a highly predictable process.
The Fiduciary Constraint. A pension fund manages capital for individuals counting on those returns twenty or thirty years down the road. Every single investment decision must pass through a single, uncompromising filter: can this be easily justified to the board of trustees? Look at the clear patterns in our data:
Florida State Board of Administration backing TrueBridge and Asia Alternatives
These are not just marquee names on a cap table. They represent rigid institutional constraints that travel alongside the money.
This is precisely why a Classic FoF backed by this specific LP base will almost never act as an anchor investor for a Fund I – unless they run a ring-fenced emerging manager program inside their VC allocation. And this isn’t because their investment team lacks conviction or fails to see the upside. Explaining a commitment to a first-time manager with zero institutional track record to a conservative pension board is a task that, in most cases, remains structurally impossible.
Government-Led FoFs: The Sovereign Monoculture
The darkest square on our entire matrix belongs to the Sovereign/State column within Government-Led FoFs: 54 distinct entries. No other bucket even comes close to this density in any single column. Meanwhile, pension capital (1), foundations (1), and family offices or HNWIs (0) are practically non-existent within this segment.
This is the only bucket funded entirely by a single source. Sovereign wealth funds, state-owned investment vehicles, and supranational institutions are simply different structural expressions of the same underlying asset class: political capital tied to a political mandate. Look at the clear institutional architecture:
EIF backed by the European Commission and the European Investment Bank
Korea Fund of Funds backed by the Ministry of SMEs and Startups
Beneath this extreme concentration of sovereign capital lies a critical structural nuance: many Government-Led FoFs are funded not directly by state budgets, but through development banks acting as institutional LP intermediaries. Examples from our data include:
While this capital passes through an additional layer of institutional wrapping, the political mandate travels alongside the money regardless of how it is packaged.
For a Western GP, the practical takeaway is absolute: these 54 sovereign LP entries mean that Government-Led FoFs exist in an isolated ecosystem governed by an entirely separate set of underwriting rules. Rigid geographic mandates, strict sector requirements, and strategic political alignment represent structural barriers that simply cannot be overcome by the quality of your pitch.
Hybrid FoFs: Strategic Capital
Hybrid FoFs carry the highest absolute concentration of corporate LPs – 47 distinct entries. Concurrently, they maintain a strong presence of Development Finance Institutions (10) and Sovereign/State allocators (10) – a capital mix unmatched by any other bucket.
A corporate LP within a Hybrid FoF is rarely a passive financial investor chasing pure financial yield. Look at how these dynamics play out in our dataset:
Nikon allocating to Isomer Capital to buy strategic access to European technology deal flow
IFC backing Capria Ventures to drive its development mandate across emerging markets
Behind every corporate LP lies a distinct strategic agenda, carrying expectations that extend far beyond baseline IRR metrics. These institutional allocators are looking for structured co-investment rights, proprietary information flow from underlying portfolio companies, and immediate proximity to innovation within their respective sectors.
Furthermore, the high concentration of Development Finance entries (10) within Hybrid FoFs highlights another critical pattern: the hybrid model serves as a preferred vehicle for state-adjacent capital that requires commercial, market-driven flexibility without compromising its public development mandate.
Emerging Manager-Focused FoFs: Diversification by Design
The most striking pattern when look at this category is the sheer scarcity of concrete LP data. And this isn’t surprising: the segment lacks the massive, heavily regulated institutional allocator classes legally bound to publicize their alternative commitments. For the most part, their capital base is comprised of private individuals and family offices – entities notorious for keeping their fund investments private, let alone their Fund of Funds exposure.
In our dataset, High-Net-Worth Individuals (HNWIs) account for just 6 distinct entries, yet even this small sample represents a meaningful presence unmatched by any other bucket. This subset highlights how influential individual and family office capital is across these vehicles:
Coolwater Capital backed by the founder of a $100B+ PE group and a prominent hedge fund manager
Crossover VC backed by more than 40 professional athletes and entertainers.
Emergence Ventures systematically drawing individual allocators from Germany
Based on my experience, there is a highly rational explanation for this behavior. Looking at the market, the average non-institutional LP typically moves through a distinct multi-stage evolution. They almost always begin by investing in startups directly. In doing so, they are essentially playing a brutal numbers game: even among elite professional investors, the historical probability of a seed-stage company successfully becoming a unicorn is around a mere 0.5-2%.
Realizing these odds, they pivot to investing in venture funds directly. However, practice shows that an individual allocator or a lean family office simply lacks the internal infrastructure required for institutional sourcing and rigorous due diligence – not to mention securing allocations with top-tier managers who frequently oversubscribe and close their vehicles in stealth mode within a few months.
Only after confronting this reality do they graduate to the Fund of Funds level. For them, it is the ultimate investment product: they willingly accept an additional layer of fees in exchange for what effectively functions as an “EM ETF” – a highly diversified vehicle tracking emerging managers who, as established earlier, statistically deliver the highest alpha.
Consequently, the Emerging Manager-Focused row is the only one in our entire matrix without a single dominant column. The distribution speaks for itself: Pensions (4), Sovereign (1), Corporate (8), Foundations (9), Endowments (2), Insurance (3), Development Finance (2), Family Offices (2), and HNWIs (6). With no single asset category exceeding 9 entries, this represents the most diversified LP base across all four buckets – and it is by no means an accident.
Take philanthropic foundations, for instance. Their 9 entries represent the highest relative concentration across the entire dataset:
Ford Foundation maintaining simultaneous exposure across Fairview Capital Partners, Illumen Capital, and Plexo Capital
W.K. Kellogg Foundation backing Illumen Capital, Next Legacy Partners, and Renaissance Venture Capital
A foundation deploying capital with a multi-decade horizon and a strict mission-aligned mandate is not burdened with justifying an early-stage commitment to a conservative, hyper-fiduciary board of trustees. They can systematically absorb structural risk that a pension fund is legally incapable of taking.
Ultimately, it is this precise capital mix – foundations providing long-term structural freedom, individuals lending conviction-based credibility, and corporates unlocking strategic network access – that allows an EM-focused FoF to execute what a Classic FoF structurally cannot.
Key Takeways
The market is smaller than it looks. There are 132 active FoFs, but for a real emerging manager, the addressable market is roughly 33 funds – just 25% of the total.
76% of all EM-focused FoFs are American. Furthermore, 58% of the entire 132 FoF pool is based in the US. For a non-US manager, this is the first and most brutal hurdle, even if a fund’s mandate formally covers other markets on paper.
China ranks second by FoF count, but it is an unaddressable market for Western GPs. Out of 22 funds, 12 are government-led and only 2 are EM-focused. Political mandates and strict geographic boundaries make this ecosystem closed by definition.
Europe produces talent faster than capital. European pension funds allocate a mere 0.12% to VC, compared to 10.4% in the US. The number of new fund launches plummeted by 71% between 2022 and 2025. The talent flywheel is outrunning the capital flywheel.
European breakouts will trigger the flywheel. ElevenLabs birthed Baobab Ventures. Credo Ventures closed an €86M fund on the back of that specific exit. This is precisely how the European market will evolve.
AI is a structural catalyst. AI captured 88.8% of all VC deal value in Q1 2026. If this technology cycle spans 20 to 30 years, the market is only beginning to fragment – and this is where EM-focused FoFs hold a structural advantage.
A FoF’s LP base dictates which managers it can physically back. This is not a matter of conviction or pitch quality; it is an operational constraint that travels alongside the money.
EM-focused FoFs are the only bucket without a dominant LP category. Foundations (9), HNWIs (6), Corporate (8) – with a maximum of 9 entries in any single column. This exact diversification gives them the structural freedom to do what a Classic FoF institutionally cannot.
Part 2: Navigating the Emerging Manager Market
In this section, we primarily unpacked three foundational layers: the macro archetypes shaping the Fund of Funds landscape, their global geographic concentration, and the historical waves that built this market. But while analyzing these structural tiers and LP dynamics is essential, it only sets the stage.
In Part 2, we are moving past the bird’s-eye view to focus exclusively on the Emerging Managers focused market. We will take a granular look at the data to answer the questions that actually matter when you are hitting the fundraising trail:
Who are these funds? We will break down the specific players actively looking to anchor Fund I and Fund II vehicles.
Who runs them? A look at the DNA and backgrounds of the decision-makers on their investment committees.
What do their portfolios look like? We will analyze their actual deployment patterns and sizing strategies.
How active are they right now? And most importantly, we will map out exactly who you should target to secure your first close, saving you months of shouting into the institutional void.
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This is a really great, thoughtful article with a global understanding of the market. Well done ! The case for emerging managers should gain traction, notably in Europe.
Great resource!