Co-invest/IB to PE
Could someone explain why a GP would potentially choose someone with an IB background instead of a person who already has co-invest experience?
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I may add later, but generally LPs lack perceived (and occasionally practical) levels of sophistication and temperament to do GP work. Many LPs are doing co-invests for fee mitigation, not excess returns, and the skill set there (mining deals from your GPs and borderline rubber stamping transactions) differs from what’s expected of junior PE hires.
I can count on one hand the number of PEFoF/co-invest teams that do meaningful modeling and thoughtful underwriting, and, while their assoc’s would hold their own against any IB->PE assocs, on the whole the industry is not conducive to facilitating such career transitions.
Where your question gets tricker is private credit / mezz shops - they should be able to hire co-invest folks plug-and-play but they seldom do.
Any thoughts on what firms those are?
Not the OP but would imagine it would be firms that have completely separate co-invest teams (and separate funds as well) from their other investing strategies that are looking for outsized returns but still be thoughtful on asset allocation among sector and strategy (buyout vs. growth vs. venture). Some of these co-invest teams will also do co-underwriting or lead growth rounds with firms that have a reputable sponsor already on the cap table, similar to normal growth equity funds. The thought process for a lot of these groups is that they are aiming for PE returns without having to put as much effort on portfolio operations once the deal is done since they can lean on the sponsor they partnered with. An associate or VP would be doing similar work to the GP on the execution front like reviewing the company materials from a banker or another sponsor to build/sensitize a model and IC deck, conduct their business/market/commercial diligence and management meetings, and manage any one off legal, accounting, etc. workstreams.
There aren't really many firms that operate under this model, but imagine some of the larger FoF and co-invest players have something like this built out. Top of mind are the teams within Carlyle (AlpInvest), Ardian, HarbourVest, etc.. Firms like this are reviewing a thousand opportunities a year looking to make a few dozen investments. For a lot of people this is a pretty good deal, you focus almost exclusively on the investment decision part of PE, while removing a lot of the portfolio ops and 3rd party work that can often add a lot of hours to the job. Pretty great WLB at about 45-55 hours a week at about a 10-20% pay discount relative to UMM/MF buyout firms.
OP here and pretty much endorse this - dedicated vehicles are the easiest threshold, from there the next cut is culture at the top (how the MDs treat the co-invest business, what are the backgrounds of sr team members, etc.). Would add some one-offs like Canadian pension plans (and, to a lesser extent for now, their US counterparts that are seeking to emulate the model).
Pay discount is a bit higher last time I looked and doesn’t accelerate as it does at GPs, but it generally scales with WLB. Some places pay closer to MMPE but you grind a bit less, others pay a meaningful discount but your hours are predictable/relaxed and you almost never work weekends.
There's also the "process" side of things that being in a co-invest seat doesn't really expose you to very much. You're often handed everything to you on a platter and then make a decision about that.
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