Investment strategy that is changing the private equity

In a private equity, the smart general partners (GP) realizes that co -investment is not just fundraising. They are a strategic lever. Okay, they strengthen the portfolio, deepen LP relationships and reduce the overall risk of risk. Nevertheless, many GPs still consider mutual support rather than the fundamental element of the fund strategy.

In today’s climate, where the LPs are more selected, the standards of underworld are high and confidence is difficult to earn, the co -investment can be an edge that separates the high -performing GP from the pack. This is how highly sophisticated firms are using co -investors not only to raise capital, but also to build flexible departments and hard LP alignment.

Related: Cooperation between limited partners and growth partners: Investors approach

Why co -investment is more important than ever before

Over the past decade, the co -investment market has grown sharply. According to The Prick’s World Private Equity ReportAbout 70 % of LP now expects mutual investment opportunities from its fund managers. This demand is no longer limited to the mega-derived family offices. Finding ways to increase the exposure of direct deals by reducing the structure of independent wealth and even smaller foundations, reducing the structure of the blended fee.

Meanwhile, a 2023 report from the pitch book He emphasized that the volume of co -investment is also increasing in the fluctuating markets, which have fuel in search of deep access to more control, low fees and quality deals through LPS.

This is a challenge and an opportunity for GPS. Challenge: If not well managed, the co -investment can pressure internal resources and slow down the deal. Opportunity: When the funding operations and strategies from the first day, the co -investment portfolio increases flexibility, attracts strategic LP, and reduces the risk of concentration, without reducing the fund governance.

Co -investment as a tool for portfolio construction

Smart GPs treat co -investment capacity as part of their capital’s steak, not separate, ad hoc offer. This mentality allows them:

• Chase big deals Without increasing the fund level concentration, it can only be supported by the fund.

• Add diversity By allocating funds to basic positions and inviting investors involved in adjoining or high -risk assets.

• Work quickly Pre -qualifying LPS on opportunistic deals through short notes that co -operative investments.

We say your $ 100M fund is targeting 10 basic platform deals worth $ 10 million. You get a M 25M, which is in accordance with thesis but exceeds the display of your single asset. Along with the co -investment capital, you can still guide the deal, finance $ 10 million from the fund and M. 15 million from co -investors. This approach maintains the portfolio balance while provides LPS directly to a large asset.

More importantly, it makes your reputation as GP, which not only brings access to capital.

For this dynamic case -stadian in the process, This piece of hamilton lane It makes it clear how the investment involved in the modern private market strategy has become an essential source.

Related: Direct investment risks and rewards for LPS

Reducing the risk while increasing ownership

One of the extraordinary advantages of co -investment is that it allows GPS to control the basic funds without overposing high democratic assets. In many cases, the most attractive deals are the most capital. Without a co -investment partners, GP should choose between taking a small piece or allocating more than the fund.

By bringing co -investors, the GP can secure the majority or lead positions while living within the limits. This improves governance, external time and controlling plans to create value, all critical levers in reducing the negative risk.

In addition, navigating the co -investment market cycles can prove to be a powerful tool. During misery, GPS can select heavy deals from the capital to secure dry powder, while still deployed on discounts. BVCA’s 2023 Private Equity Guide During the recession, firms are adjusting their mutual investment behavior.

Co -investment strategy operational backbone

Of course, a co -investment offer is not just about the flow of contract. The GPs that have taken over it have prepared to handle the internal system:

• Legal structure: Role of Quick SPV Setup, Allotted Mechanics and Clear Governance

• LP segments: Understanding which investors have the pace of hunger, capacity and decision -making for mutual investment

• Data Sharing: Safe, real -time access to diligent materials and post -investment reporting

• Complying and justice: To ensure transparent allocation that is not damaged to the basic fund

This operational backbone is often the difference between firms that can offer co -investors and who do so on a permanent, clean and scale.

Wanted to strengthen your funds for GPS, facilitating a co -investment administration, LP communication and investor on -boarding to a platform like Carta and Juniper Square.

The use of tools, such as pass throws to smooth subscription documents or endways for automatic investors’ workflows, are also using more modern GPS.

Co -investment promotes lasting confidence

From the LP point of view, we look at the co -operative investment as a way to show confidence and alignment. This calls them more, more return and often a major role on the table. When a fair job is done, it turns your investors into what they are – a full partner. In a world that is becoming more and more relationship -based in terms of fundraising, GPS, which is permanent, thinking of co -investment, is the benefit.

• Maintain Top LP in future funds.

• Transform a timely investor into anchor promises.

• Allocate the competitive fundraising cycle.

According to Harbost’s 2023 LP surveyAbout 80 % of the LPS reported high satisfaction and confidence in the managers who offered access to co -investment, especially when the deal performed well and communicated transparently.

Related: Why direct investment through LPS is on the rise

A word of caution: don’t prehisus maximum

With all its benefits, the co -investment is not a silver pill. When used excessive or bad, it can be at risk of implementation, can cause defects and LP can be brought into dispute. The most common shortcomings are these:

• Providing too much in co -investment, reducing their quality

• Giving kindness with allocation

• Side Deal Logistics deploy

• Unable to connect internal bandout to handle complexity

The best firms are selected. They have set expectations with LPS quickly, often focus on PPM or DDQ, and higher quality than quantity. An excellent co -investment that provides wins can be more than five powerful that do not perform.

Co -investment is no longer optional. They are a descriptive feature of modern private equity. But the shores do not come from their offer. This is achieved by integrating your portfolio into construction, risk management and LP strategies.

Smart GPS knows this. They use a co -investment to fill a cap table, but also to build a sustainable LP relationship, to endanger a major risk and to unlock operations. Since the fundraising becomes more competitive and the LP demands more than their managers, those who understand the co -investment as the basic fund, will not offer the last minute.