How technical are LP investment roles? Especially within FoF, Family Offices, and Endowment Funds, which engage in fund investments?
Could you shed light on how these technical requirements may evolve when LPs also engage in co-investments and spontaneous direct investments?
It really depends on the role, size and type of LP. If we were to look at the three different buckets,
Primaries: Technical requirements are not high. You may construct fund models to model out the impact of changes in management fees/carried interest levels, and to model out past returns if you want to model out a "shadow fund" based on a deal-by-deal track record. But typically these are not extremely complex. Most of primary funds work is focused on strategy, track record, market opportunity, team, alignment, risks, etc. so its a lot more qualitative in nature.
Secondaries: For LP secondaries, usually quite heavy on the Excel work but not in the sense that you'll be constructing full operating models and leading DD. Instead, the financial modelling you might be looking at is making 10 separate paper LBOs for 10 underlying companies in an LP interest to model out expected returns, or modelling out exit and returns assumptions (comps based) for 30 underlying companies across 4 funds. Excel heavy but you don't go deep into companies, but rather 'sense checking' price to see if you can get the returns you want based on the expected % to NAV you're paying.
GP-leds can be modelling heavy depending on how important you are to the deal. If you're leading the GP-led transaction typically the financial modelling can be quite close to a direct deal, but would still leverage quite heavily on sponsor materials.
Co-invests: Some co-investors just review sponsor-provided models, but some LPs that do minority direct (OTPP, GIC, Temasek, etc.) can essentially act as co-sponsors and so they will play a role in full buildout of operating and LBO models, along with paying and commissioning LDD, CDD, TDD, FDD, etc.
TLDR: in general, technical requirements are not as high for LP investing roles, but varies quite heavily on the type of investment you're looking at and on how big/sophisticated the LP is.
Can confirm. I’m in secondaries and the modeling is pretty straightforward. If you can do a waterfall model and model potential exits for assets in a fund that’s pretty much all there is. We will also do standard valuations of the portfolio (not just marking it to last round) and when we have good info we will build a better operating model, but that’s it. It’s really not that technical.
Thank you so much for the details. Can you please recommend a source where I can learn more about the waterfall model specifically for the Secondaries space?
Based on the most helpful WSO content, the technical requirements for LP investment roles can vary greatly depending on the role, size, and type of LP. Here's a breakdown:
Primaries: The technical requirements are not high. Work is more focused on strategy, track record, market opportunity, team, alignment, risks, etc. so it's a lot more qualitative in nature. You may construct fund models to model out the impact of changes in management fees/carried interest levels, and to model out past returns if you want to model out a "shadow fund" based on a deal-by-deal track record. But typically these are not extremely complex.
Secondaries: For LP secondaries, usually quite heavy on the Excel work but not in the sense that you'll be constructing full operating models and leading DD. Instead, the financial modelling you might be looking at is making 10 separate paper LBOs for 10 underlying companies in an LP interest to model out expected returns, or modelling out exit and returns assumptions (comps based) for 30 underlying companies across 4 funds. Excel heavy but you don't go deep into companies, but rather 'sense checking' price to see if you can get the returns you want based on the expected % to NAV you're paying.
GP-leds: The financial modelling can be quite close to a direct deal, but would still leverage quite heavily on sponsor materials.
Co-invests: Some co-investors just review sponsor-provided models, but some LPs that do minority direct (OTPP, GIC, Temasek, etc.) can essentially act as co-sponsors and so they will play a role in full buildout of operating and LBO models, along with paying and commissioning LDD, CDD, TDD, FDD, etc.
In summary, technical requirements are not as high for LP investing roles, but varies quite heavily on the type of investment you're looking at and on how big/sophisticated the LP is.
Sources: What’s the deal with Investor Relations?, Private Funds Group (CS/UBS etc), best job for work life balance?, GP vs LP - Which is better
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