Hugo King-Oakley is head of private markets and community for GPFO(Global Partnership Family Offices), which regularly asks its members what issues are top of mind for them. One of those issues is co-investments. King-Oakley discusses what co-investments are and how they can benefit family offices:
What do you know about family offices’ interest in co-investments?
Members of our community have been saying they are keen to do more co-investment for the last five to 10 years. From our anecdotal data it is becoming increasingly important.
What do they mean by co-investment?
As co-investment became part of the common lexicon of the private markets investment world, it became apparent that definitions were different.
For example, nearly all of our members say they want to be co-investing. What we found was only 63% of those were actually co-investing, which is quite a considerable difference. Our suspicion was there was a misalignment of definition.
So we did some research around definitions of co-investments. We offered four possible definitions. The first was direct investing alongside other family offices on equal terms, with no fees — nearly 100% of people considered that co-investment.
And we slowly got further away from that core definition. A majority of survey respondents agree with these two definitions:
- Direct investing alongside other family offices on unequal terms, or with associated fees for participation.
- Investing in single-asset special purpose vehicles (SPVs), sidecar vehicles or funds of other family offices with associated management fees and carry.
Only one-third agreed with this definition of co-investment:
- Investing in sponsor-led direct investment opportunities where other family offices are also investing, either directly or via SPVs.
What benefits do family offices gain from co-investing?
A majority of respondents to our survey said the specialist expertise of other investors and shared due diligence resources were benefits of co-investing. More than 40% (but less than a majority) also agreed alignment of interests with trusted partners and shared ongoing monitoring and governance were benefits.
Why are family offices increasingly interested in co-investing?
My view is it’s a combination of factors: There’s been a significant shift toward private markets and alts in terms of a broader asset allocation shift. It is becoming increasingly important to our members as a way of accessing private markets.
Co-investing also gives family offices, who like to have slightly more direct engagement, direct control. It gives them a way to get increased exposure to that specific investment versus going in through a blind pool fund, or whatever that investment might have looked like in a different structure.
Doing co-investments as opposed to direct investments gives them additional resources, whether that’s on the due diligence process, the ongoing management of the investments or sharing some of those resources with other peers and investment partners. That’s a big draw.
If someone has deep domain expertise in terms of diligencing and managing the investment, and that’s another family office you can invest alongside, that seems like a win-win for both parties in terms of more capital for the opportunity, but also shared expertise.
