How to Set Up a National Fund-of-Funds: A Strategic Blueprint for Ecosystem Builders

I just got out of a really interesting lunch conversation on how to set up a national fund-of-funds. Here are my notes, sketched out over lunch and expanded into a practical guide for anyone considering this journey.

The Lunch Meeting That Started It All

“We want to build a fund-of-funds,” our lunch meeting guest said, pushing aside his coffee cup to make some more notes. “We have the need, the support and the people, but we just need to get started”.

Sound familiar? Over the past decade, I’ve had this conversation in London, Dubai, Singapore and a dozen other cities. The enthusiasm is always there. The capital is increasingly available. But the roadmap? That’s where things get murky.

This article lays out a practical framework for setting up a national fund-of-funds—from understanding what you’re actually building to navigating the five critical decision points that will determine whether your fund becomes a catalyst for ecosystem transformation or another well-intentioned initiative that struggles to deploy capital.

What Is a Fund-of-Funds?

A fund-of-funds (FoF) is an investment vehicle that invests in other investment funds rather than directly in companies. Instead of writing checks to startups, a FoF writes checks to venture capital and private equity fund managers, who then deploy that capital into their portfolio companies.

Think of it as a layer of strategic capital allocation—you’re not just funding companies, you’re funding fund managers who will build relationships, develop deal flow, and create value across multiple portfolio companies over time.

Government-Backed Fund-of-Funds

Government-backed FoFs typically serve a dual mandate: financial returns and strategic ecosystem development. They’re designed to catalyze private capital formation, support emerging fund managers, and develop regional investment capacity. These funds often operate with longer time horizons and accept different risk-return profiles compared to purely commercial vehicles.

Key characteristics include:

• Strategic ecosystem development objectives alongside financial returns
• Patient capital with 10-15+ year time horizons
• Willingness to anchor emerging fund managers
• Focus on market failures and underserved segments
• Often co-investment rights to increase deployment pace

Private Fund-of-Funds

Private FoFs are commercial vehicles focused primarily on risk-adjusted returns. They provide institutional investors access to top-tier fund managers, diversification across vintages and strategies, and professional due diligence. These funds compete purely on performance and must demonstrate clear LP value proposition.

Key characteristics include:

• Return-focused with institutional LP base
• Access to oversubscribed, top-tier managers
• Portfolio construction expertise and diversification
• Active secondary market participation
• Strict performance benchmarking against indices

Notable Examples of Fund-of-Funds

The global FoF landscape includes both government-backed strategic vehicles and commercial institutional players. Here are some instructive examples:

Nysnø Klimainvesteringer (Norway)

Norway’s state-owned climate investment fund operates as a fund-of-funds with NOK 5 billion in capital, specifically targeting funds that invest in renewable energy, clean transportation, and emission reduction technologies. Nysnø demonstrates how government-backed FoFs can deploy capital toward strategic national priorities while maintaining commercial discipline. Their approach combines patient capital with clear climate impact metrics, showing that strategic objectives and financial returns aren’t mutually exclusive.

Dubai Future District Fund (DFDF) (UAE)

The DFDF represents the UAE’s strategic commitment to innovation and technology ecosystem development. This government-backed fund-of-funds focuses on backing both local and international VCs who can deploy capital into the region’s emerging technology companies. The fund serves as an anchor LP for emerging managers and helps establish Dubai as a competitive hub for venture capital activity in the MENA region.

Qatar Investment Authority (QIA) (Qatar)

While QIA operates across multiple asset classes, their fund-of-funds arm has become increasingly active in backing global venture capital and growth equity funds. Their strategy focuses on gaining access to leading managers globally while identifying opportunities for portfolio companies to expand into Middle Eastern markets. QIA demonstrates how sovereign wealth funds can use FoF structures to build relationships with top-tier managers and create pathways for international companies to enter new markets.

Jelawang Capital (Malaysia)

Jelawang Capital is a RM300 million fund-of-funds launched by the Malaysian government to accelerate local venture capital ecosystem development. The fund backs both established and emerging fund managers investing in Malaysian startups, with particular emphasis on technology and innovation-driven companies. Jelawang’s approach includes not just capital deployment but active ecosystem building through GP capability development.

Private Market Examples

Multiple Capital: A leading institutional fund-of-funds that focuses on providing emerging managers with anchor capital and strategic support. Their model combines financial backing with operational expertise, helping new fund managers navigate their first fund lifecycle.

Isomer Capital: Focuses on backing diverse fund managers and traditionally underrepresented GPs, demonstrating how FoFs can address systematic market gaps while generating competitive returns. Their thesis centers on the opportunity created when talented managers face traditional LP access barriers.

Cendana Capital: Perhaps one of the most successful early-stage fund-of-funds globally, Cendana has pioneered the micro-VC ecosystem development model. Founded by Michael Kim in 2010, Cendana became the first institutional investor in firms that went on to become some of the most successful seed-stage investors globally, including Forerunner Ventures, Initialized Capital, and SV Angel’s funds.

Watch Michael Kim discuss the Cendana Capital approach: Michael Kim | Founder of Cendana Capital on How Small VC Funds Can Return 200X+

Kim’s insight was recognizing that backing the right emerging managers at the seed stage—when they themselves needed patient capital to build their franchises—could generate exceptional returns while simultaneously developing the venture capital ecosystem infrastructure that startups needed to scale.

Understanding Your FoF Thesis: Two Examples

Before committing hundreds of millions in capital, you need absolute clarity on your investment thesis. A strong FoF thesis goes beyond “we want more venture capital in our ecosystem.” It requires deep understanding of market gaps, strategic positioning, and realistic success metrics.

Here are two contrasting but viable thesis examples:

Example 1: The Strategic Ecosystem Catalyst

Nordic Climate Technology FoF

Purpose: Accelerate Nordic leadership in climate technology by developing specialized fund management capacity focused on deep tech, industrial decarbonization, and sustainable infrastructure.

Geographic Focus: Priority to Nordic-based managers, with 40% allocation to European managers with Nordic co-investment commitment.

Stage Focus: 60% early-stage (seed through Series A) / 40% growth stage (Series B to PE)

Sector Focus: Climate technology, including energy transition, circular economy, sustainable materials, carbon capture, and industrial efficiency.

Target Fund Manager Profile:

• Emerging managers (Fund I-III) with domain expertise
• Proven investment professionals with climate technology sector knowledge
• Strong technical networks in Nordic research institutions and corporate partners
• Commitment to portfolio company value creation beyond capital

Strategic Value Creation:

• Build dedicated climate tech investment capacity in region
• Leverage Nordic strengths in renewable energy, maritime, and industrial technologies
• Create pathways for portfolio companies to access Nordic corporate partners
• Develop LP ecosystem around climate technology thesis

Success Metrics (5-Year):

• 15+ fund managers backed representing 4+ Nordic countries
• €800M+ in indirect portfolio company investment catalyzed
• 50+ portfolio companies connected to Nordic corporate partners
• 8+ GP teams expanded to raise Fund II
• Top quartile IRR performance against European VC benchmarks

Example 2: The Commercial Access Vehicle

Pan-Asian Technology Growth FoF

Purpose: Provide institutional investors with curated access to top-performing growth-stage technology investors across Asia-Pacific, capturing returns from the region’s scaling digital economy.

Geographic Focus: Greater China 35% / Southeast Asia 30% / India 25% / ANZ + Japan 10%

Stage Focus: 80% growth stage (Series B through pre-IPO) / 20% late-stage venture (Series A-B)

Sector Focus: Enterprise software, fintech, e-commerce enablement, healthtech, and digital infrastructure. Explicitly avoiding consumer social and gaming.

Target Fund Manager Profile:

• Established managers (Fund II+) with proven track record
• Teams with regional operational networks and exit execution capability
• Managers with differentiated sourcing in high-growth sectors
• Portfolio construction discipline and realistic ownership targets

Strategic Value Creation:

• Portfolio construction optimization across vintage years and strategies
• Active position management and secondary market participation
• Cross-portfolio strategic introductions for regional expansion
• Proprietary LP reporting and portfolio transparency

Success Metrics (5-Year):

• 25+ fund commitments across 12+ managers
• Gross MOIC 2.5x+ with top-quartile DPI profile
• 15+ portfolio companies achieving unicorn valuation or successful exit
• Zero capital loss to fraudulent managers (through rigorous operational DD)
• Successful Fund II raise based on demonstrated performance

These thesis examples illustrate fundamentally different approaches—one optimizing for ecosystem development with patient capital, the other optimizing for institutional returns with established managers. Both are valid. What matters is strategic clarity and consistent execution against your chosen model.

Setting Up a National Fund-of-Funds: Five Critical Decision Points

So, back to that lunch meeting. What are the essential elements that determine success? Based on working with fund-of-funds teams across three continents, here are the five decisions that matter most:

1. Purpose: Why Are We Really Doing This?

This sounds obvious, but fuzzy purpose kills fund-of-funds faster than any other factor. You need brutal clarity on whether you’re building an ecosystem development vehicle, a commercial return optimizer, or something in between.

Key Questions:

• What specific market failure or opportunity are we addressing?
• What does success look like in 5 years? In 10 years?
• How do we balance financial returns with strategic objectives?
• What happens if these objectives conflict?
• Who are our key stakeholders and what are their expectations?

Red Flags:

• “We want to do what [other country/region] did” without understanding their context
• Multiple conflicting objectives with no clear priority order
• Success metrics that shift based on who’s asking
• Purpose defined in terms of capital deployment rather than outcomes

Best Practice: Create a one-page strategy statement that articulates your purpose, success definition, and decision-making principles. Share it with every stakeholder. If you can’t get universal agreement on this document, you’re not ready to deploy capital.

2. Backing: Do We Have the Right Political and Industry Backing?

A fund-of-funds requires sustained commitment across political cycles and market conditions. Without genuine backing from both government (if public sector) and private industry, you’ll struggle to attract quality fund managers or maintain strategic focus when things get difficult.

What Real Backing Looks Like:

• Multi-year capital commitment that survives budget cycles
• Board composition that includes experienced fund-of-funds professionals and institutional investors
• Political air cover when early investments underperform (because they will)
• Private sector LP participation or endorsement
• Support from existing fund manager community

Building Backing:

• Conduct extensive stakeholder consultation before launch
• Establish advisory board of experienced LPs and fund managers
• Create transparent reporting mechanisms
• Set realistic expectations about J-curve and long-term nature of returns
• Develop champions in both political and business leadership

Warning Signs of Weak Backing:

• Fund structure requires annual budget approval
• Board lacks investment experience or changes frequently
• Private sector skepticism about government involvement
• Unrealistic return expectations from political leadership
• Lack of committed capital beyond initial year

3. Investment Structure: What Should the Investment Structure Look Like?

Your investment structure needs to balance strategic flexibility with institutional discipline. This includes fund sizing, deployment pace, portfolio construction, and commitment sizing.

Critical Structural Decisions:

Fund Size: Right-size your vehicle for your ecosystem. A $50M fund-of-funds can back 5-10 managers meaningfully. A $500M fund needs 20-30 managers for diversification. Common mistake: oversizing the fund relative to investable universe.

Commitment Size: Typically $5-25M per fund, representing 5-15% of target fund size. Too small = no influence or economics. Too large = concentration risk and manager dependency.

Deployment Pace: Plan for 3-4 year investment period with 8-12 fund commitments per year. Front-loading creates portfolio construction problems. Back-loading suggests inadequate deal flow.

Vintage Year Diversification: Invest across multiple vintage years to reduce timing risk. Target 3-4 vintage years during investment period.

Re-Up Strategy: Decision framework for following managers into subsequent funds. Top-quartile performers typically get 1.5-2x commitment in Fund II.

Co-Investment Rights: Negotiate rights but be realistic about execution capability. Most FoFs lack resources for extensive co-investment.

Geographic and Sector Guardrails: Clear but not overly restrictive. “60% domestic, 40% international with domestic co-investment” works. “Exactly 25% in each of four sectors” creates portfolio construction problems.

4. GP Accelerator: How Do We Build a World-Class GP Accelerator?

Here’s the inconvenient truth: there should be no fund-of-funds without a supporting GP accelerator, especially in emerging markets.

Most FoFs I’ve ever seen fail for one key reason: their GPs can’t close and the FoF ends up not deploying their committed capital. You commit to backing 15 emerging fund managers. Two years later, only 5 have closed funds. You’re going back to the board explaining you’re holding “committed but not called capital” for years, and the GPs have given up.

The solution? Build GP capability development into your fund-of-funds strategy from day one.

What a GP Accelerator Provides:

• Structured fundraising training and capability development
• Access to LP networks through organized roadshows
• Fund formation and legal infrastructure support
• Portfolio management and value creation frameworks
• Peer learning among cohort of emerging managers
• Ongoing strategic advising throughout fundraising journey

Integration with FoF:

• GP accelerator participants become qualified pipeline for FoF commitments
• FoF acts as anchor LP for graduating accelerator participants
• Combined model reduces risk of capital deployment failure
• Accelerator fees can partially offset FoF operational costs
• Creates sustainable ecosystem development model

Essential Components:

1. Rigorous selection process (accept 10-15% of applicants)
2. 3-6 month structured program combining hard work, mentorship, and LP access
3. Dedicated program team with fundraising and fund operations expertise
4. LP network partnerships for roadshow opportunities
5. Post-program support and relationship management

For detailed frameworks on building GP accelerators, see our articles on Building a GP Accelerator and Planning a GP Accelerator: Use the GP Accelerator Business Model Canvas.

5. LP Network: How Do We Build a Winning LP Network Around Our FoF?

A fund-of-funds isn’t just a capital vehicle—it’s a network amplifier. Your LP network should strengthen your portfolio managers’ fundraising capability, not just provide capital.

Strategic LP Network Building:

Anchor LPs: Secure 2-3 substantial anchor commitments from credible institutional investors or development finance institutions. These commitments validate your fund to the market and attract additional LPs into the GPs.

Complementary LP Mix:

• Development finance institutions (patient capital, strategic alignment)
• Family offices (flexible, relationship-driven)
• Corporate strategics (industry connectivity)
• Institutional investors (credibility, discipline)
• High-net-worth individuals (fast decisions, enthusiasm)

LP Value Beyond Capital:

• Make LP introductions to portfolio GPs for their fundraising
• Create LP-GP networking events and roadshow opportunities
• Facilitate portfolio company business development through LP networks
• Share best practices and market intelligence across LP community

LP Reporting Excellence:

• Quarterly reporting with portfolio-level and fund-level metrics
• Annual LP meetings with portfolio GP presentations
• Transparent discussion of underperformance and course corrections
• Regular market insights and ecosystem development updates

Building the Network:

• Start with 15-20 target LP prospect, build from there
• Conduct extensive LP diligence on what they want from a FoF
• Create LP advisory committee for ongoing strategic input
• Long-term, aim for a network of 3.000 co-LPs you can work with

The Hard Reality: Timeline and Patience Required

Building and scaling a successful national fund-of-funds is not an easy task. It’s a multi-year effort—easily five years to show any meaningful results (deployed, not returned) and often 10-12 years to start showing underlying fund performance worth anyone’s attention.

Year 1-2: Fund formation, initial LP commitments, first GP scouting. Little visible progress beyond early conversations had.

Year 3-5: Early commitments. Portfolio construction, some closings. GP funds begin deploying into portfolio companies. Some early markups possible but no distributions.

Year 6-8: Early portfolio companies reaching inflection points. First modest distributions from faster-returning funds. Meaningful valuation increases. Fund II decisions for top-performing managers.

Year 9-12: Material distributions might begin. Performance relative to benchmarks becomes measurable. Ecosystem impact becomes visible. Capital recycling decisions.

Year 12+: Full cycle performance validated. Success stories emerge. Market demonstration effects visible. Fund II or successor vehicle decisions.

This timeline doesn’t account for the inevitable disappointments: managers who underperform, fraudulent operators who slip through diligence, market corrections that destroy portfolios, political pressure to deploy capital faster than prudent.

From Strategy to Execution

The lunch conversation that inspired this article ended with a clear call to action this week already. I am excited to see what that next conversation might being.

We already know, from emerging ecosystems in places like the Nordics and MENA, that a national fund-of-funds can transform an ecosystem. It can catalyze private capital formation, develop fund management capacity, and create pathways for startups to access growth capital. But only if it’s designed with strategic clarity, built with institutional discipline, and executed with patient commitment to long-term outcomes.

The napkin sketches from lunch was important. But it is the work that happens next that matter.

Want to Learn More About Building VC Ecosystems?

This article is part of an ongoing series on ecosystem development, fund strategy, and GP capability building. For more frameworks and insights:

• Building a GP Accelerator
• Planning a GP Accelerator: Use the GP Accelerator Business Model Canvas

Chris Rangen is a fund strategy advisor who has worked with 250+ emerging fund managers globally and has consulted on multiple fund-of-funds initiatives across Asia, Europe, and the Middle East. Alongside colleagues like Scott B. Newton and Rick Rasmussen, he runs global VC Masterclasses and teaches at leading programs like IMD’s Venture Asset Management Program, led by Jim Pulcrano (Lausanne), and Newton Venture Program (London).

Over the past five years, he has designed and run 3 GP accelerators in collaboration with 2X GP Sprint, and he has helped design five more programs. He believes that thoughtfully designed fund-of-funds paired with robust GP accelerators can accelerate ecosystem development by 5-10 years compared to purely organic market development.

Reach Chris at [email protected] or WhatsApp: +4792415949