Hi all,
About to join a private credit shop which allows me to co-invest into their fund (not into individual investments but into the fund)
I think the expected returns are between 10% - 15%
I wanted to ask a few things:
Is the return profile right?
Would you recommend taking out a personal loan to invest (e.g. I put in $/£50k and have a loan of $/£50k @5% p.a.)
What are some of the things that one should be aware of when co-investing.
Thank you!
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If you are asking these questions then you shouldn't be coinvesting. Also, do not take out a loan to do it, Jesus christ.
Thanks for this - quite helpful.
Why? I haven't joined the fund yet and there isn't enough detail out there. They used to invest out of a pool of capital and have now set up a dedicated fund for the strategy.
On the loan, why not? Can you please elaborate. I'm inclined to do it and am looking for coherent counter arguments thank you.
To caveat, I work in PE, not PC. PE co-invest at any decent shop seems like a no brainer (including the use of leverage) and a real differentiator on comp. However, from the outside, I don't see how private credit co-invest would be all that attractive. Being offered co-invest, you have the right to ask your firm some questions - below are some Qs I'd ask.
If the return target is something like 10-12% and there is no way to invest in a tax-advantaged way, I'd be skeptical of investing in a meaningful way. Assuming your marginal tax rate is in the 50% range, you would end up clipping a 5-6% post-tax return, whereas just simply investing in public equity ETFs offer ~6-10% nominal returns without realizing tax for the next 30+ years. Yes, perhaps private credit exposure diversifies you a bit, but it's certainly not a no brainer.
Would be curious to hear opinions from those in PC as well. As I've considered a move to the space, one disappointment has been the relative unattractiveness of it's co-invest.
makes sense - super helpful!
These are good questions and i'll definitely ask them.
Sounds about right. My shop is doing something similar but does levered co-invest. I wouldn’t take out a personal loan though.
Thanks for this - need to check if my fund offers levered co invested.
Illiquidity without real upside is not worth it, at all. Even if they landed on the high side of that, there are better illiquid opportunities for someone deploying a small amount of money.
What other illiquid opportunities with 15%+ return profile do you see assuming $100k check size?
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