CFO Forum: 8 in 10 GPs offer co-investing

More than eight out of 10 general partners who attended Private Equity International’s CFOs and COOs Forum last week offer co-investment opportunities, according to a live poll from the event.

Eighty-three percent of GPs said they offer co-investing, but there are more granular aspects to it than simply offering the strategy and having investors accept it.

In another poll, GPs were asked whether they are seeing co-investors asking for an increasing number of side letter agreements. Here’s how they responded:

• 37 percent of respondent said they offer co-investments and co-investors usually limit their side letter requests to the provisions of the fund side letter
• 30 said they offer co-investments and rarely have requests for any side letters in connection with co-investments
• 17 percent simply do not offer co-investments
• 16 percent said they offer co-investments and usually receive a lot of new side letter requests applicable only to the co-investment

One delegate said there is definitely a limited partners’ focus on making sure they have access to co-investment opportunities during the fund commitments. While it is not a deal breaker when those opportunities aren’t offered, he said, it is a consideration they take.

When asked whether LP commitments to funds are dependent on also receiving co-investment opportunities, here’s what GPs replied:

• 68 percent of respondents said LPs are merely asking to be considered when they are offering co-investments
• 25 percent said LPs are conditioning their fund commitment on the GP’s covenant to offer exclusive or semi-exclusive priority on co-investments
• 4 percent said LPs insist on all co-investments being offered pro rata to all LPs with overallotment rights
• 3 percent said LPs insist on all co-investments being offered pro rata to all LPs without overallotment –i.e. unsubscribed amount can be offered to non-LPs

Finally, GPs were asked whether they typically receive management fee and carried interest from LPs for co-investment opportunities:

• 55 percent said no, adding that their co-investments are no fee no carry (these GPs have more than $500 million in assets under management)
• 15 percent said no, adding that their co-investments are no fee no carry (these GPs have less than $500 million in assets under management)
• 14 percent said yes, adding that their co-investments are typically reduced fee and reduced carry
• 10 percent said yes, adding that their co-investments are typically reduced fee but no carry
• 6 percent said yes, adding that they co-investments are typically no fee and reduced carry