Key Takeaways
- • According to S&P data cited in the article, global private equity deal value fell 51% year over year in the first six months of 2023, while transaction count dropped 39%.
- • Co-investment funds are presented as a resilient niche within private equity, offering LPs curated exposure to buyouts, multiple GPs, and fees that are lower than the standard 2/20 structure.
- • Claus Mansfeldt, chairman of Swancap, which manages €4bn in multi-investor funds including the recently announced Swan VI co-investment fund, argues co-investment offers diversification, cheaper costs, GP access and performance evidence.
- • Manuel San Salvador of Antwort Capital says private equity typically comprises 10% to 15% of a diversified portfolio and can add up to 2% annual return over ten years.
- • The article flags continuation vehicles as competition for co-investment, with unrealized private equity value held by GPs at roughly $3trn but continuation vehicles accounting for only about 5% of exits.
Summary
According to S&P data cited in an article published by Paperjam, global private equity deal value dropped 51% year over year during the first six months of 2023, and the number of transactions fell 39%. Despite this challenging backdrop, the article argues that the co-investment segment has proved comparatively resilient.
The piece describes co-investment funds as vehicles that let limited partners participate alongside general partners in specific deals. Its cited advantages include a curated portfolio of buyouts drawn from a large funnel of opportunities, diversification across industries, geographies, size brackets and vintages (best-in-class managers offering programmes of up to 35 co-investments), access to multiple GPs, and lower fees than the traditional 2% management and 20% performance fee structure. The article also cites a recent academic study finding that co-investments produce comparable or greater gross returns than the rest of a GP's portfolio, with reasonably sized co-investment portfolios often delivering higher average net returns.
Claus Mansfeldt, chairman of Swancap, a private equity fund and co-investment manager with €4bn in multi-investor funds under management, including the recently announced Swan VI co-investment fund, highlights diversification, cost advantages, exposure to leading GPs and empirical performance evidence as reasons for institutional and private investors to consider the strategy. Manuel San Salvador, managing partner at Antwort Capital, a feeder platform focused on top-quartile private equity funds, notes that private equity typically makes up 10% to 15% of a well-diversified portfolio and can add up to 2% annual return over a ten-year period, with co-investment further enhancing that allocation's return.
The article identifies continuation vehicles as a competitive pressure on co-investment, blurring the line between co-investment and secondaries. It notes that unrealized value held by GPs has risen to roughly $3trn, while continuation vehicles account for only about 5% of exits. Deal flow for co-investment is described as strong, though prices remain high, particularly in the United States. Valuations in Europe have shifted due to debt uncertainties and geopolitical tensions, with demand concentrated in healthcare, critical business services, asset management, insurance brokerage, food and distribution, and infrastructure.
The piece describes co-investment funds as vehicles that let limited partners participate alongside general partners in specific deals. Its cited advantages include a curated portfolio of buyouts drawn from a large funnel of opportunities, diversification across industries, geographies, size brackets and vintages (best-in-class managers offering programmes of up to 35 co-investments), access to multiple GPs, and lower fees than the traditional 2% management and 20% performance fee structure. The article also cites a recent academic study finding that co-investments produce comparable or greater gross returns than the rest of a GP's portfolio, with reasonably sized co-investment portfolios often delivering higher average net returns.
Claus Mansfeldt, chairman of Swancap, a private equity fund and co-investment manager with €4bn in multi-investor funds under management, including the recently announced Swan VI co-investment fund, highlights diversification, cost advantages, exposure to leading GPs and empirical performance evidence as reasons for institutional and private investors to consider the strategy. Manuel San Salvador, managing partner at Antwort Capital, a feeder platform focused on top-quartile private equity funds, notes that private equity typically makes up 10% to 15% of a well-diversified portfolio and can add up to 2% annual return over a ten-year period, with co-investment further enhancing that allocation's return.
The article identifies continuation vehicles as a competitive pressure on co-investment, blurring the line between co-investment and secondaries. It notes that unrealized value held by GPs has risen to roughly $3trn, while continuation vehicles account for only about 5% of exits. Deal flow for co-investment is described as strong, though prices remain high, particularly in the United States. Valuations in Europe have shifted due to debt uncertainties and geopolitical tensions, with demand concentrated in healthcare, critical business services, asset management, insurance brokerage, food and distribution, and infrastructure.
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