Today’s LPs want to be direct dealmakers, too.
It’s a bargain GPs are willing to strike, granting co-investment rights to win fund commitments. But stiff competition among co-sponsors is forcing institutional investors to staff up their dealmaking ranks and train their governance committees to move faster.
Take Liberty Mutual‘s $100-billion-plus investment arm, which is transitioning its platform from fund commitments to direct and co-investments.
“We want to be the first call [for deal flow] today,” said David Ott, head of relationship management at Liberty Mutual Investments, at the SuperReturn conference in Miami last week.
Co-investments have gained momentum in recent years, as close-ended fund distributions in the private markets have declined and limited LPs’ ability to commit capital to follow-on vehicles. GPs have gotten creative in their strategies for attracting institutional capital, offering top existing and prospective LPs sweeteners, like co-investments, to build and maintain relationships with investors.
In 2024, co-investment vehicles with PE managers raised a global total of $33.2 billion—the largest amount raised in over a decade, according to PitchBook data.
In late 2020, Liberty Mutual Investments was a lead underwriter, alongside Iconiq Capital, CH Investment Partners and Koch Companied Defined Benefit Master Trust, on Owl Rock and Dyal Capital’s $1.8 billion combination to create Blue Owl, the now-over-$250-billion publicly traded asset manager.
Since then, the insurance company’s investment manager has built its direct and co-investing teams to nearly 500 employees—about 150 of whom are investors focused on increasing direct deal flow—and underwritten several smaller deals. Last year, for example, Liberty Mutual Investments, alongside middle-market PE firm Imperial Capital, made a growth-style investment in Certus Pest Control, and in December, Liberty joined CPP Investments and Calstrs in a $255 million funding round for geothermal systems power plant developer Fervo Energy.
Liberty Mutual is far from alone in its ambitions to reduce its overreliance on commitments to blind pools of capital. Large institutional investors in the US, like Calstrs, the New York State Common Retirement Fund and the Texas Municipal Retirement System, are building robust direct and co-investing programs to take advantage of the deal type’s benefits, including more direct exposure to PE’s pipelines, closer relationships with GP sponsors and fee mitigation.
GPs say there’s strong demand for deals free from the fee burdens of comingled funds.
“Today, it feels like co-investments are table stakes,” said Natasha Siegal, head of investor relations at Veritas Capital, on a panel at last week’s conference. “For us lately, it’s been almost a one-to-one ratio of fund commitments to co-investments.”
Outsized demand for co-investment and direct deal opportunities, paired with the fact that only a handful of additional investors are required to co-sponsor a deal, means that the competition for LPs hoping to get in on the rush is stiff.
Asset managers at the Miami conference warned that LPs must move quickly to get in on a co-investment, but this nimbleness isn’t available to some pensions and endowments with scrutinous investment committees and governance approval processes.
According to a person close to Liberty Mutual Investments, internal investment teams are making a “significant” effort to enable rapid execution on deals when attractive co-investments come onto their desks.
“If an LP can move quickly, they’re more likely to get in on a co-investment deal,” Siegal said.
Liberty Mutual Investment declined PitchBook’s request for further comment.
Liberty Mutual Insurance office building in Boston in 2023.
Featured image by JHVEPhoto/Getty Images
Learn more about our editorial standards.
