Is co-investment the answer?
The first in our new Deep Insight series looks at whether co-investment is the way to get the best out of private markets – and whether it’s riskier for LPs than it seems. Considered by many an “unofficial fee break” and an “alpha generator”, the rapacious appetite for co-investment is showing no sign of abating: Cambridge Associates estimates co-investments make up around one-fifth of total market activity. We delve into juicy performance data, weigh up what it takes to be a reliable investment partner and investigate the risks involved.
First up: how are LPs accessing co-investing and is it delivering alpha?
Focus on Africa
Edmond de Rothschild Private Equity and Africa-focused Amethis have held a €375 million final close on their latest and largest vehicle for the continent. The firms launched the vehicle this year and exceeded their original target by €75 million. Fund II had a high re-up rate with more family office and institutional LPs alongside DFIs. EdR PE and Amethis are set to hit the fundraising trail again late this year with their fifth Africa vehicle. It’ll be a smaller fund (the target is €150 million) targeting investments in Morocco, Egypt and Jordan.
Andrew Caspersen, the Park Hill fund restructurings expert jailed in 2017 for attempting to defraud investors out of $95 million, is out of prison and counting down his days to final release in a halfway house in Brooklyn. The case rocked the private equity and financial services world with SEC private equity unit co-head Igor Rozenblit blaming the “complicated and opaque” fund restructurings industry for providing Caspersen with the perfect cover. We’re not sure the industry has fully learned its lessons from the case but there are signs its head is in the right place, as sister title Secondaries Investor writes.
Buyer’s remorse? The average PE add-on value in Europe more than doubled last year to a record £164 million ($208 million; €184 million), according to Silverfleet Capital’s latest European Buy & Build Monitor. It’s not competition for assets but firms being more reluctant to disclose their deal values, with the total number of add-ons larger than €67 million more than halving last year, the report notes. Our takeaway: everyone loves showing off a bargain, expensive assets not so much.
This Financial Times long read (paywall) looks at how Kirkland & Ellis harnessed the upward trajectory of the private equity industry to become the world’s biggest law firm. K&E shifted from a 50:50 litigation and transactions split a decade ago to deal-related fees accounting for more than three-quarters of revenue. Part of its success stems from its entrepreneurial model – which, as the piece suggests, is not for everyone.
LP meetings. It’s Monday, so here are some LP meetings to watch out for this week.
- 10 June – Public School and Education Employee Retirement Systems of Missouri is holding a board meeting; Louisiana School Employees’ Retirement System is holding an investment committee meeting.
- 11 June – Los Angeles City Employees’ Retirement System is holding a board/investment committee meeting.
- 12 June – Minnesota State Board of Investment is holding a board meeting.
- 13 June – Virginia Retirement System, Maine Public Employees Retirement System, Teachers’ Retirement System of the State of Illinois and Connecticut Retirement Plans and Trust Funds are holding board meetings; New Mexico State Investment Council is holding an investment committee meeting.
- 14 June – Pennsylvania State Employees’ Retirement System is holding an investment meeting.
It’s Invest Europe’s CFO Forum 2019 in Valencia tomorrow and Wednesday and senior reporter Rod James will be there. Drop him a line if you’ll be there and fancy catching up on the latest industry gossip.
Texas County and District Retirement System has agreed to commit $90 million to TA XIII, TA Associates’ 13th growth equity fund, which will invest in North America and western Europe. Here’s a breakdown of the $29 billion US pension’s investment portfolio. For more information on TCDRS and more than 6,700 other institutions, check out the PEI database.
They said it
“They say, ‘Here’s an office, here are your phones, hire who you want, good luck and don’t screw up’. You have to back yourself. Of course, if it doesn’t work out, you face the consequences.”
A former Kirkland & Ellis partner describes to the FT the level of autonomy granted by the firm.
We would love your feedback to help us make this newsletter more useful; click here to give us your opinion.
Today’s letter was prepared by Adam Le, Isobel Markham, Carmela Mendoza and Sheikh Jahan.
Subscribe now and get Side Letter delivered to your inbox each day
To find out how, email email@example.com, or call our team:
London: +44 207 566 5432
New York: +1 646 545 6296
Hong Kong: +852 2153 3140