How do your firms structure co-invest opportunities for associates / sr. associates?
How would one start doing levered co-invest and what is it typically? I am assuming associates put in a certain $ say $10K and can get the full co-invest opportunity of say $30K?
Thanks.
We commit a dollar amount to the fund, and as investments are made and capital is actually called then we fund our pro-rata share of the investment and receive a loan from the GP to increase the total amount.
So your co-invest is from the GP? Do you mind if I ask what the max size of the loan is?
At my firm associates can pick and choose investments on a deal by deal basis and fund up to a certain $. Only problem is that this is just from our savings so I was seeing if other firms have a leverage facility that associate let you use / how do you set one up / what other dynamics I should consider.
I should’ve been more clear. Our firm has a facility with a bank that funds the whole matching loan pool. We individually pay our portion of the interest quarterly.
Same setup at my fund. $1.5B, 8 associates. 50% LTV on your co-invest (so if you want to invest $100k of cash you commit $200k and they’ll finance half of it).
I use a security-backed line of credit to finance my half so I don’t actually come out of pocket for anything, blended interest rate ~4% between the two facilities with $100k invested and no cash out the door
Do you mind me asking how you arranged the financing of your half of the commitment?
My fund doesn't offer leverage on our associate co-invest but I'd be very keen to find alternative solutions.
Thank you!
How’d you get the security backed line of credit?
>$10bn MF:
For associates, the GP gives us an advance to our expected net bonus until the next bonus cycle. Other than that no leverage on Associate level, meaning your max leverage on the Co-invest is ~1x next net bonus.
For mid-level and Partners, the GP organised a credit line funding 75% LTV.
Adding another data point as an associate at a $5-10B firm: we have a banking partner who offers us an LOC at 70% LTV (interest rate ~3.25%) and we're able to invest $10k per deal for a max of $30k (depending on equity check size). We don't get a bonus advance from the GP, so we usually sweep some portion of our bonus to maintain 70% LTV.
That's really interesting to hear the line of credit - low interest rate so you put in ~$20K and get ~$10K of leverage.
I think it would be the reverse--we put in ~$10k to get ~$20k of leverage (as the LOC covers 2/3 of the value, not 1/3).
Ha thanks - running on a few hours of sleep! Its always in the midst of a platform diligence you think about how to improve comp
Family office, family funds leverage. We get 2x leverage, min $25k equity check. So I invest 25k family gives me $50. Interest rate is 3.0% and interest is accrued and paid through the distributions.
Are the returns from coinvest taxed as income or long term capital gains?
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