Side Letter: Co-investment takeaways; PE’s mental health drive; GSAM’s PEP vet

An exploration of the drivers of co-investment dealflow in 2022, courtesy of our colleagues at Buyouts. Plus: PEI dives into private equity's mental health movement; and Goldman Sachs Asset Management has recruited a veteran Australian dealmaker. Here's today's brief, for our valued subscribers only.

Just happened

GPs and their co-investors: Driving forward despite uncertainty (Source: Getty)

Co-investment considerations
Private equity deal activity may have cooled in 2022, but dedicated co-investors are staying the course thanks to resilient dealflow and emerging opportunities to support portfolio companies mid-way through the life of an investment. Those are some of the findings from the latest co-investment special report (registration required) from our colleagues at Buyouts, which explores why co-investing is still on a roll, how regulatory proposals could impact the strategy, and why co-investments can spark tension between LPs and GPs. Here are a few key takeaways:

  • More selectivity. Co-investors are saying no to more opportunities amid concerns about overpaying and a greater focus on whether businesses have strong pricing power.
  • Mid-life opportunities. GPs are looking to co-investors for follow-on funding for existing portfolio companies as debt becomes significantly more expensive.
  • Fund alternatives. Firms that have delayed their fundraising plans may bolster their firepower through the increasing use, and size, of co-investment allocations for their LPs.
  • Friction point. Though GPs usually prioritise existing LPs when it comes to co-investments, they sometimes reserve allocation for new relationships. If GPs are seen to be unfairly allocating co-invest to potential new LPs, that can create some friction.

Headphones on…
Mental health has become a greater priority for PE firms in recent years. Case in point: sponsors put $5.5 billion into businesses focused on wellbeing in 2021, a 139 percent increase from the prior year, according to CB Insights. What is driving this shift, and how are firms approaching the issue within their own business? This is a question PEI Media seeks to answer in the first episode of our new podcast series, On the minds of millennials.

During the episode, PEI Media’s Mina Tümay and Evie Rusman speak to Sam Tidswell-Norrish, managing director at Motive Partners, and Tanja Lukas, investment director for PE at Schroders Capital, to discuss how the industry is addressing mental health. Tidswell-Norrish and Lukas also share their own personal experiences and offer advice to those who may be struggling. Listen to the podcast here.

Continuation consternation
Europe is like the “wild west” when it comes to the way continuation fund processes are run, our colleagues at Secondaries Investor report (registration required). In North America, such processes have coalesced around a common time frame and set of documents, as well as a common format for those documents, Debevoise & Plimpton funds partner John Rife told delegates at the BVCA Summit last week. While some transactions are done “very well” in Europe, others are outliers. Giving examples, Rife said he had come across transactions where there has been tension between local counsel and international advisers about who will run the process. For LPs, the situation can cause headaches. Rife said that in some scenarios he had sympathy from their perspective, adding that investors think: “Gee, I don’t have enough time, I’ve never seen a transaction set up like this, I’ve never seen documents that look like this, and I have 10 days to [make a decision].”

Essentials

Grayce-d with David’s presence
Goldman Sachs Asset Management has appointed a veteran dealmaker to its Australia and New Zealand investment team. David Grayce spent more than 24 years as a managing director at Pacific Equity Partners, one of Australia’s largest and oldest firms. He joins GSAM as a managing director in its growth and corporate equity team, according to an internal memo seen by Side Letter. “David will work alongside local teams across alternatives investing and build on the success of the firm’s platform in the region as we continue to grow our Asia corporate and growth equity business,” the memo said. Grayce’s appointment was first reported by the Australian Financial Review. GSAM invests in the region via its globally focused West Street Capital Partners VIII fund, which closed on $9.7 billion last month.


Today’s letter was prepared by Alex Lynn with Carmela Mendoza and Madeleine Farman.