Private equity co-investments gain popularity

Investors’ increasing interest in private equity co-investments is driven by the outperformance such investments can offer. Eighty-five percent of investors stated that their returns from co-investments were better than their private equity fund investments, while the the remaining 15% stated the returns from their co-investments were similar to fund investments.

Seventy-five percent of investors cited the potential for higher performance as a key advantage of co-investments, while 70% stated the reduced cost associated with co-investments as a top pull factor.

Fund managers primarily see co-investments as a way to build stronger relationships with investors, with 76% of fund managers stating this as an advantage of offering co-investments.

However, 58% of fund managers believe that offering co-investments can delay the deals process, while 33% stated co-investments can have a negative impact on their relationships with investors that are not offered co-investment rights.

“Private equity co-investments are set to play an increasingly significant role in the investment plans of both investors and fund managers in 2014 and beyond,” says Ignatius Fogarty, head of private equity products with Preqin. “Investors are keen to take advantage of the potential for higher returns and lower costs that co-investments can offer, with many investors looking to increase their exposure to such investments in the year ahead.”

Participating in the survey were 140 private equity investors and 80 private equity fund managers worldwide.

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