Key Takeaways
- • Preqin reported that 80% of surveyed limited partners saw co-investments outperform private equity funds, with nearly half reporting an outperformance margin above 5%.
- • 87% of 320 surveyed general partners offered co-investments or planned to for future fundraising, and 23% raised at least half their capital via co-investments in H1 2015, versus 11% for all of 2014.
- • Co-investment capital appeared in 57% of 2014's $1 billion-plus private equity deals, but only 20% of such deals in early 2015.
- • Pension funds such as Ontario Municipal Employees' Retirement System and UK's Railpen (£21 billion / $32 billion portfolio) are exploring in-house private equity capabilities to access the asset class more cheaply.
Summary
Co-investments in private equity are outperforming traditional fund models, according to research from data company Preqin. Preqin reported that 80% of the limited partners it surveyed saw co-investments outperform private equity funds, and nearly half saw a margin of more than 5%. Christopher Elvin, head of private equity products at Preqin, said the most common LP motivation for co-investing beyond typical fund commitments is the prospect of better returns. He cautioned that several investors described it as "too early to tell how their stakes will ultimately perform." Elvin added that, provided LPs have sufficient resources, co-investment opportunities should remain attractive due to lower fees and greater potential returns.
General partner appetite is also growing. Preqin found that 87% of the 320 managers questioned either offered co-investments or planned to for future fundraising. Eighty-four percent said co-investments helped forge stronger investor relationships, and 76% said the option improved their fundraising capabilities. Nearly a quarter (23%) of GPs raised at least half their capital from co-investments in the first half of 2015, compared with 11% for the whole of 2014.
Co-investment participation in large transactions has shifted. Among the biggest private equity deals completed in 2014, valued at $1 billion or more, Preqin said 57% included co-investment capital. For the first half of 2015, that figure was just 20%.
Pension funds on both sides of the Atlantic are exploring a simpler, cheaper route into private equity. The Ontario Municipal Employees' Retirement System has established an in-house private equity capability, while the UK's Railpen is exploring a similar move within its £21 billion ($32 billion) portfolio.
General partner appetite is also growing. Preqin found that 87% of the 320 managers questioned either offered co-investments or planned to for future fundraising. Eighty-four percent said co-investments helped forge stronger investor relationships, and 76% said the option improved their fundraising capabilities. Nearly a quarter (23%) of GPs raised at least half their capital from co-investments in the first half of 2015, compared with 11% for the whole of 2014.
Co-investment participation in large transactions has shifted. Among the biggest private equity deals completed in 2014, valued at $1 billion or more, Preqin said 57% included co-investment capital. For the first half of 2015, that figure was just 20%.
Pension funds on both sides of the Atlantic are exploring a simpler, cheaper route into private equity. The Ontario Municipal Employees' Retirement System has established an in-house private equity capability, while the UK's Railpen is exploring a similar move within its £21 billion ($32 billion) portfolio.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.