Co-invest: what's the best approach?
Hi fellow monkeys - I work at a PE firm that gives associates the opportunity to co-invest $x00K into the firm's funds. Returns will be gross of fees. How do people recommend approaching this decision?
Theoretically, the firm targets 20-25% gross IRR on average, but in practice over the N2Y returns may be worse. Your capital is drawn only in the years you are an active employee at the firm. Also, your capital can be tied up for 5-7 years.
Don't have multiple hundred K's lying around and want to be able to buy a house down the line. Is it worth participating in the co-invest, or better to just put everything in S&P or NASDAQ?
I put 25% of my overall investment portfolio into coinvest deals through work. It allows me to have some skin in the game, plus I have an in-depth knowledge of how the assets are performing, along with all risk mitigants involved. Makes me more comfortable with the risk than even some blue chip public equities.
It's enough to allow me to capitalize on potential upside, but not enough of my overall net worth to wipe me out or prevent me from a large purchase (ie. a house, business school) should that arrive. I also like how my money is tied up for awhile - prevents swing trading and dumb option plays in my PA.
I doubt the minimum for coinvest is over $100k - there should be no reason why you would not be allowed to put in less, like 50k.
Thanks! Very helpful perspective. To clarify, the $x00K is the maximum. The minimum is $0.
How does getting returns from coinvest work? Is coinvest based on a per deal basis and do you get your returns only when the portco is exited via IPO or M&A?
Your co-invest dollars are deployed in proportion to the size of each deal, so you get exposure to all deals in the time window in which you are an employee of the firm. You cannot pick & choose the deals you deploy your co-invest capital into.
Yes - co-invest returns are realized when they are realized for the fund -- when there is some sort of liquidity event for the portco.
Thank you! Very helpful. Is this coinvest on a deal basis or an overall fund basis? Ie. Would the PE fund have to meet the overall hurdle rate before giving returns on the coinvest or is that just for carry? And is this fund wise coinvest or per deal coinvest?
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