In 2016, limited partners participated in 76 US private equity transactions, the cumulative value of which hit $33.8 billion, more than any year since 2007. Moreover, this year is off to a strong start in terms of value, with $9.8 billion tallied thus far across a slower-paced 13 deals.
The steady upward trend in these deals since 2010 is unmistakable, if volatile, testifying to not only the growing popularity of co-investment among LPs but also the ramping up of those institutions already experienced with such strategies. This is not necessarily news—many have pointed out the attraction of avoiding fees and increasing rewards directly reaped from investment while acknowledging it's no small task to build up an in-house team capable of handling direct deals.
Acquiring these capabilities is time-consuming, expensive and inherently riskier, in the end. It consequently won’t be a preferred choice for many LPs—nor is it likely their best option—but it will remain more the domain of those firms already well-versed in employing such direct investing strategies, like Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan.
That said, there could be a slight increase in the ranks of LPs that try to get the best of both worlds and subscribe on to funds that allow for the possibility of co-investment through sidecar pools of capital or other means.
Note: This column was previously published in the Lead Left.