CAIA - CIT 6 - Co-Investments

Question 1

Compared to private equity funds, co-investments have ___ costs and potentially ___returns.

Answer 1

Compared to private equity funds, co-investments have lower costs and potentially higher returns.

Question 2

Investors have 4 key ways to pursue co-investing:

1. F
2. D
3. S
4. D

Answer 2

Investors have 4 key ways to pursue co-investing:

1. Fund of funds

2. Diversified co-investment

3. Single GP co-investment fund

4. Direct

Question 3

Co-investments compose ___-___% of many FoFs

Answer 3

Co-investments compose 5-15% of many FoFs

Question 4

FoFs typically suffer ___ losses but have ___large wins.

Answer 4

FoFs typically suffer fewer losses but have fewer large wins.

Question 5

FoFs that charge a ___ ___ across investments have an incentive to include co-investments.

Answer 5

FoFs that charge a flat fee across investments have an incentive to include co-investments.

Question 6

In ___-___co-investments funds, investors invest in a basket of co-investments that an advisor or FoF sources.

Answer 6

In multi-sponsor co-investments funds, investors invest in a basket of co-investments that an advisor or FoF sources.

Question 7

Multi-sponsor co-investment funds typically have a ___% / ___% management fee.

Answer 7

Multi-sponsor co-investment funds typically have a 1% / 10% management fee.

Question 8

The performance of multi-sponsor co-investment funds has been ___.

Answer 8

The performance of multi-sponsor co-investment funds has been mixed.

Question 9

Single-sponsor co-investment funds ___ outperform the GP’s main fund.

Answer 9

Single-sponsor co-investment funds often outperform the GP’s main fund.

Question 10

The traditional approach to co-investing is ___.

Answer 10

The traditional approach to co-investing is directly.

Question 11

The ___ ___ of co-investing typically results in ___-performance.

Answer 11

The lower cost of co-investing typically results in out-performance.

Question 12

Co-Investments typically ___ J-curve.

Answer 12

Co-Investments typically reduce J-curve.

Question 13

The benefits of co-investing:

1. B
2. J
3. H
4. T
5. S

Answer 13

The benefits of co-investing:

1. Better risk-return

2. J-curve mitigation

3. High efficiency

4. Tailored

5. Strengthen GP/LP relationship

Question 14

There are a number of challenges to implementing direct co-investment:

1. S
2. S
3. T
4. D
5. A
6. B

Answer 14

There are a number of challenges to implementing direct co-investment:

1. Skillset

2. Sourcing opportunities

3. Timing

4. Decision-making process

5. Adverse selection

6. Benchmarking

Question 15

Capital in the GP’s main fund may be scarce because:

1. E
2. E
3. O
4. G

Answer 15

Capital in the GP’s main fund may be scarce because:

1. Early or doesn’t have enough commitments

2. End of the investment period

3. Opportunity larger than strategy

4. GP nearing concentration limit

Question 16

Co-investors need to have ___ and ___processes in place since they will have little time to make a decision on co-investments.

Answer 16

Co-investors need to have evaluation and approval processes in place since they will have little time to make a decision on co-investments.

Question 17

LPs should be mindful of ___ ___risk related to the possibility that managers offer less attractive deals.

Answer 17

LPs should be mindful of adverse selection risk related to the possibility that managers offer less attractive deals.

Question 18

Some reasons GPs may have for seeking co-investment:

1. O
2. C
3. S
4. P
5. S

Answer 18

Some reasons GPs may have for seeking co-investment:

1. Opportunity is too large, but attractive

2. Certain deal will close

3. Share outperformance with LPs instead of competitors

4. Prefer passive partners

5. Stronger relationships with LPs

Question 19

Direct co-investments as a whole have slightly ___ their main funds.

Answer 19

Direct co-investments as a whole have slightly underperformed their main funds.

Question 20

The best time to co-invest is likely in ___ markets.

Answer 20

The best time to co-invest is likely in volatile markets.

Question 21

Investors who outsource co-investments to fund managers may exacerbate the risk of ___, since outsource managers have an incentive to invest capital within a certain time period.

Answer 21

Investors who outsource co-investments to fund managers may exacerbate the risk of procyclicality, since outsource managers have an incentive to invest capital within a certain time period.

Question 22

The best way to measure co-investment performance is to compare ___ performance with private investments made in the same ___year.

Answer 22

The best way to measure co-investment performance is to compare gross performance with private investments made in the same calendar year.

Question 23

Co-investments in venture-backed companies are typically offered at ___-stage rounds and may ___.

Answer 23

Co-investments in venture-backed companies are typically offered at late-stage rounds and may underperform.

Question 24

Co-investors face allocation and funding complexities. There is a risk that funds will not be ___ ___or that ___-___investments will be needed.

Answer 24

Co-investors face allocation and funding complexities. There is a risk that funds will not be fully deployed or that follow-on investments will be needed.

Question 25

The key factors that can improve co-investment outcomes:

1. R
2. R
3. A

Answer 25

The key factors that can improve co-investment outcomes:

1. Risk management

2. Resources

3. Avoid adverse selection