The vast majority of general partners, 77 percent, are offering co-investment opportunities these days, according to a survey conducted at the PEI Private Fund Compliance Forum held earlier this year in New York.
And these opportunities aren’t confined to limited partners already investing in a GP’s fund. Indeed, more than two-thirds, or 71 percent of GPs surveyed at the Forum, said that they offer co-investments to someone other than existing LPs in their funds.
Meanwhile, with the increasing use of co-investments in private equity, the Securities and Exchange Commission has stepped up its scrutiny of the investment practice in recent years. The main concern revolves around the fact that co-investors might not be treated equally by a GP, in turn creating conflicts of interest.
But most GPs have begun addressing such issues, with 65 percent saying they have included enhanced disclosures to address co-investment opportunities in their fund’s private placement memorandum or limited partnership agreement.
Those policies related to allocation of co-investment opportunities are typically being tested periodically through internal procedures as opposed to through external audit or a third-party compliance provider. However, a third of respondents also said that their firms don’t test their policies.
LPs have other tools to assure that they can see all co-investment opportunities or even that they have some kind of exclusivity, such as side letters, but they aren’t using those as often as they could.