CAIA - CIT 6 - Co-Investments Flashcards
Compared to private equity funds, co-investments have ___ costs and potentially ___returns.
Compared to private equity funds, co-investments have lower costs and potentially higher returns.
Investors have 4 key ways to pursue co-investing:
- F
- D
- S
- D
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
Co-investments compose ___-___% of many FoFs
Co-investments compose 5-15% of many FoFs
FoFs typically suffer ___ losses but have ___large wins.
FoFs typically suffer fewer losses but have fewer large wins.
FoFs that charge a ___ ___ across investments have an incentive to include co-investments.
FoFs that charge a flat fee across investments have an incentive to include co-investments.
In ___-___co-investments funds, investors invest in a basket of co-investments that an advisor or FoF sources.
In multi-sponsor co-investments funds, investors invest in a basket of co-investments that an advisor or FoF sources.
Multi-sponsor co-investment funds typically have a ___% / ___% management fee.
Multi-sponsor co-investment funds typically have a 1% / 10% management fee.
The performance of multi-sponsor co-investment funds has been ___.
The performance of multi-sponsor co-investment funds has been mixed.
Single-sponsor co-investment funds ___ outperform the GP’s main fund.
Single-sponsor co-investment funds often outperform the GP’s main fund.
The traditional approach to co-investing is ___.
The traditional approach to co-investing is directly.
The ___ ___ of co-investing typically results in ___-performance.
The lower cost of co-investing typically results in out-performance.
Co-Investments typically ___ J-curve.
Co-Investments typically reduce J-curve.
The benefits of co-investing:
- B
- J
- H
- T
- S
The benefits of co-investing:
1. Better risk-return
2. J-curve mitigation
3. High efficiency
4. Tailored
5. Strengthen GP/LP relationship
There are a number of challenges to implementing direct co-investment:
- S
- S
- T
- D
- A
- B
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
Capital in the GP’s main fund may be scarce because:
- E
- E
- O
- G
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
Co-investors need to have ___ and ___processes in place since they will have little time to make a decision on co-investments.
Co-investors need to have evaluation and approval processes in place since they will have little time to make a decision on co-investments.
LPs should be mindful of ___ ___risk related to the possibility that managers offer less attractive deals.
LPs should be mindful of adverse selection risk related to the possibility that managers offer less attractive deals.
Some reasons GPs may have for seeking co-investment:
- O
- C
- S
- P
- S
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
Direct co-investments as a whole have slightly ___ their main funds.
Direct co-investments as a whole have slightly underperformed their main funds.
The best time to co-invest is likely in ___ markets.
The best time to co-invest is likely in volatile markets.
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.
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.
The best way to measure co-investment performance is to compare ___ performance with private investments made in the same ___year.
The best way to measure co-investment performance is to compare gross performance with private investments made in the same calendar year.
Co-investments in venture-backed companies are typically offered at ___-stage rounds and may ___.
Co-investments in venture-backed companies are typically offered at late-stage rounds and may underperform.
Co-investors face allocation and funding complexities. There is a risk that funds will not be ___ ___or that ___-___investments will be needed.
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.
The key factors that can improve co-investment outcomes:
- R
- R
- A
The key factors that can improve co-investment outcomes:
1. Risk management
2. Resources
3. Avoid adverse selection
