December 4, 2019

Private Equity: 2020 Limited Partner Survey

Intralinks’ annual Limited Partner Survey always makes for interesting reading.  This excerpt discusses LPs growing interest in co-investment opportunities:

When asked their preferred investment allocation method, alongside traditional LP stakes in commingled funds, 34% of survey respondents said it would be direct investment vehicles. This underscores a growing level of confidence in how they approach the world of alternative assets, as some larger institutions build their own in-house investment teams to improve returns and reduce fees.

The same is true of co-investing as LPs look to build closer partnerships with their GPs to invest side-by-side in buyout deals. In this year’s survey, it was cited by 30% of investors. As reported by Pensions & Investments, the likes of the $226.5 billion CalSTRS and $44 billion University of Texas/Texas A&M Investment Management Co. are making changes to their private equity investment approaches to evolve beyond commingled funds.

“Family offices specifically are very interested in co-investment opportunities,” says a family office investment advisor. “A private equity manager operating a commingled fund will see deal opportunities, and what they will tend to do is say to investors, ‘If you give us another $20 million we could co-invest on this deal for a modest 50 basis point fee.’ There is definitely growing interest in this.”

The survey says that the major drivers of limited partner interest in co-investment are the opportunity to improve returns & to better align their interests with those of the general partners.

John Jenkins