A conventional private equity (PE) fund typically follows a single, well-defined investment mandate—for example, buyouts, growth equity, or venture—focusing on specific sectors, geographies, or stages of company development. It holds a portfolio of direct investments aligned with this strategy.

Multi-strategy funds, by contrast, manage capital across several investment approaches within a single fund structure. The idea is to balance performance drivers and risk exposures dynamically, often switching tactics based on market conditions. These funds are centrally managed, with internal allocation decisions made by a unified investment team.

Funds of Funds, however, take diversification a step further by investing across multiple, externally managed funds—each with its own strategy, manager, and exposure profile. This structure allows the FoF to benefit from the specialised knowledge of multiple fund managers and gain access to otherwise exclusive opportunities (e.g., closed or high-minimum-threshold funds).