Credit Suisse’s Murphy: LPs want control

“The institutional investors that we speak to, including sovereign wealth funds, public pension funds, insurance companies etc, have been indicating an increasing interest in getting direct exposure to private market assets,” Michael Murphy, co-head of Credit Suisse Asset Management’s Private Funds Group told Private Equity International.

“The primary rationale has been to get more control or responsibility over exactly which assets they want to get exposure to. It’s a growing trend within the market and that’s been the backbone for it,” said Murphy, who was named earlier this month as one of the industry’s most influential fundraisers operating today in PEI‘s Rainmaker 50.

The group is seeing demand from institutional investors in North America, Middle East, Europe, South America, Asia and Australia, Murphy noted.

Last week, Credit Suisse launched a dedicated directs and co-investments division within the PFG. The four-strong team, based in New York, will be led by managing director Paul Van Hook, who has served in the PFG since 2008, and includes director Imran Hameed, who joined from placement agent Mercury Capital Advisors on 2 April, according to a statement.

“Proportionally the region we’ve seen the most deal-flow out of has been North America, given how active and developed the marketplace is here for direct investing and co-investments, but there’s a very active and growing market for these types of investments in Europe as well,” Hameed said. There is also rising investor interest in deals which could be classified as special situations and more bespoke transactions, he noted.

The PFG has completed 26 direct and co-investment transactions, worth $4.2 billion, since 2010, according to a statement.

A growing number of LPs are tapping into the direct market. Last year, the Ontario Public Services Employees Union Pension Trust said it would look towards direct and co-investments to continue building out its private equity portfolio. In August, Caisse de dépôt et placement du Quebec said it was moving “toward the objective of continuing to increase our focus on direct investments in the best companies with the best partners in the world,” according to chief executive officer Michael Sabia.

The $65 billion Alaska Permanent Fund has deployed more than $1 billion into 21 co-investments and direct investments since December 2013. These deals were generating a 67.5 percent net IRR and 2.5x multiple on invested capital as of 30 September.