Preqin: Private Equity Investors Seek Partners

(March 22, 2012) — Nearly 75% of private equity investors interested in co-investments are seeking to increase their allocations to the space, new research by Preqin has found.

Just 9% expect to reduce their exposure to investments of this type. Meanwhile, two-thirds of investors surveyed have also seen improved returns from their co-investments than their private equity fund investments, with 13% stating that returns were significantly better.

The reasons given for the benefits of co-investments included higher returns, better transparency, lower fees and the opportunity to improve relationships with their general partners (GPs). 

Emma Dineen, Manager of Private Equity Investor Data, said: “Investors are increasingly keen to co-invest with GPs…At the same time, many GPs are now more willing to offer co-investment rights in order to secure commitments to their funds, while using co-investor capital in deals allows them to invest in larger deals that they may not be able to access with fund capital alone. With 65% of LPs active in this space planning to increase their allocations to co-investments going forward and a growing number seeking to start their own co-investment programs, it is clear that we will see an increase in the level of activity in this area in the future.”

The study found that 63% of investors that actively co-invest do so on an opportunistic basis, with fund-of-funds managers accounting for the largest proportion of the co-investor universe.

From a geographic perspective, the study found that 44% of investors with an interest in co-investment are based in North America, with 31% in Europe and 25% in Asia and the rest of the world. 

Late last year, Preqin rolled out another study showing that amid an environment of market turbulence, nearly 25% of investors believed private equity is more attractive. “The global financial crisis undoubtedly prompted many limited partners to re-evaluate their private equity strategies,” commented Dineen in a statement. “Many have become more cautious and selective when choosing fund managers to invest with. However, despite recent volatility in the wider financial markets, investors generally remain positive about the private equity asset class, and many believe that there are good investment opportunities ahead.”