CFO Forum: 8 in 10 GPs offer co-investing

While 83% of GPs at PEI’s CFOs and COOs Forum said in a poll they offer co-investment opportunities, there are more specific issues and concerns surrounding the strategy.

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