The hidden cost of growth: Data challenges for funds of funds (FoFs)

Private markets have grown at a remarkable speed in recent years. For funds of funds (FoFs), this expansion is a double-edged sword. Larger, more complex fund of funds portfolios mean greater access and diversification for investors. But they also demand more from the managers charged with overseeing them.

As assets multiply, so too does the data. Information now flows in vast quantities, but rarely in ways that are timely, consistent, or easy to interpret. Too often, valuable resources are consumed by the manual effort of acquiring, processing and reconciling data from underlying fund general partners. At the same time, investor expectations are rising. Clients want sharper insights, faster reporting, and more transparency than ever before, even as fee compression reduces firms' flexibility to meet those demands. This dilemma is reshaping the future of FoFs. They must rethink how they operate, move beyond legacy systems and manual workarounds, and embrace technology that can deliver deeper insight with efficiency and at scale.

Automation and artificial intelligence (Al) are rapidly becoming central to how managers respond to client needs, protect margins, and compete in a rapidly evolving market. But success depends on using the right tools in the right way for the right job. An estimated 95% of Al pilots fail. This is not because the technology lacks potential, but because firms deploy generic solutions for specialized tasks without the necessary workflows to capture the benefits and manage the risks. In private markets, only purpose-built Al, designed to handle complex and unstructured data, can deliver real value.

The challenges are significant, but they are not insurmountable. By tackling inefficiencies head-on and investing in new ways of working, FoFs can turn today's pressures into tomorrow's advantages, strengthening relationships with investors and securing their place at the heart of a growing private markets ecosystem.

Introduction

Private markets AUM grew over 20 times between 2000 and 2024, reaching $22 trillion this year, according to McKinsey.

However, this growth comes with increased complexity for funds of funds (FoFs). 

As portfolios grow and strategies diversify, the volume of unstructured information flowing between fund general partners (GPs) and limited partners (LPs) has risen sharply. At the same time, investor expectations for transparency and timeliness have never been higher. Yet GP reporting remains fragmented and inconsistent, making oversight and decision-making increasingly difficult for LPs. For FoFs, which must consolidate and interpret data across multiple managers, these challenges are particularly acute. Firms are under pressure to adapt operations quickly, satisfy growing investor demands and protect already tight operating margins.

To understand how the industry is responding, we surveyed 100 senior investment professionals at FoFs across the UK, Europe, and the U.S. 

Our research reveals not only the scale of the problem but also its consequences and the strategies firms are adopting to move forward.

This report explores four core themes shaping the FoF landscape today:

1. The data challenge: Widespread issues with information quality, availability, and consistency, and their impact on reporting and decision-making

2. Operational inefficiencies and the cost of manual processes: How reliance on spreadsheets and manual processes increases risk and limits scalability

3. Navigating fee pressure and rising investor demands: Balancing calls for greater transparency and service with persistent margin compression

4. The shift toward automation and Al: Why technology is fast becoming a critical enabler of efficiency, insight and competitive advantage

Together, they reveal an industry in transition. One that is grappling with systemic data problems but also beginning to embrace new tools and approaches to meet the demands of a rapidly evolving market.

Full report available: Start reading now for free

This executive summary offers a critical snapshot, but the full Hidden cost of growth: Data challenges for funds of funds report provides the deep-dive analysis you need to understand the structural risks and competitive advantages in the private markets.

In the complete report, you'll find:

• Detailed analysis on the operational costs of manual processes

• In-depth comparison of technology adoption across U.S. and European FoFs.

• The key priorities FoF managers are focusing on for the next 12 months (e.g., data accuracy, integration, standardization)

• A framework for evaluating how purpose-built technology, like Carta LP Portfolio Analytics, can transform portfolio complexity into clarity and a competitive advantage

Get the complete data, analysis, and strategic recommendations to inform your next investment decision.