LPs attitudes towards co-investments

by Louise Weller

  • 30 Aug 2011
  • PE

Employees' Retirement System of Texas has announced that it is looking to begin co-investing alongside GPs in its portfolio, which will gradually see it form fewer new relationships with managers. The USD 23 billion public pension fund will allocate up to 20% of its private equity portfolio to co-investment opportunities. It believes that the co-investments will allow the pension fund to work more closely with GPs, whilst also reducing the amount of fees it pays. Texas ERS began investing in the private equity asset class in 2008 and expects to commit around USD 625 million to between six and ten private equity funds and also co-investment opportunities in the 2012 fiscal year. By 2016, the pension fund expects to have committed USD 3.7 billion to the asset class, allowing it to reach its target allocation which lies at 8% of total assets.

Another US public pension fund looking to increase its activity within the co-investment space is California State Teachers' Retirement System. CalSTRS has total assets under management of USD 154 million and is planning to make more co-investments as part of an effort to reduce costs. Furthermore, Ontario Municipal Employees Retirement System (OMERS) is looking to focus more on direct or co-investment opportunities in the future. The CAD 53 billion public pension fund is hoping this will allow it to adopt a more active management style with greater control over its investments.

Preqin currently tracks 549 LPs (excluding fund of funds managers) that consider co-investing in portfolio companies alongside fund managers. 42% of such investors are located in the North America, with a further 33% based in Europe and 25% located elsewhere in the world. Results from our forthcoming H2 2011 Investor Outlook: Private Equity Report show that of the LPs interviewed that seek co-investment opportunities, 30% expect to increase their activity in this area in 2011 compared to 2010, and a further 60% expect to maintain their level of activity in this area. This demonstrates more LPs are looking to make co-investments in the future as means of working more closely with GPs, whilst reducing overall costs.

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