Dear institutional investors with allocations to private equity,
If you are among those LPs that aren’t co-investing with managers – and apparently that includes 54% of you – you’re not getting full value for the ridiculous hefty fees you’re paying these guys. See this figure.
This chart is a no brainer. Seriously. All it really tells us is what we already know: that co-investments are private equity investments...without the fees. As such, the returns, by definition, should be better. (I can only assume the lower returns experienced by 6% come from a lack of diversification in the co-investment portfolio.)
Anyway, I accept that you have to have the internal expertise to be able to properly assess incoming transactions. And I accept that private equity managers are often (not always) stingy with their co-investment rights. But, this time, it’s worth the fight. It’s worth the fight with the manager. And it’s worth the fight with your Board and Sponsor, as hiring the internal talent to fight these battles and assess these transactions will cost you a fraction of what you will earn through co-investing.
Signed,
Ashby
