Hi, lurker & first time poster. Can anyone share their experience or knowledge on how modeling intensive FoF secondary/co-investing positions are? (Think...Coller, Stepstone, Partners Group, Ardian, Pantheon,etc.)
How deep do you really dig into the underlying companies when evaluating a secondary position or co-invest opportunity? Wouldn't most firms leverage the firm's existing models & assumptions? ...would you simply be recycling the PE firm's existing modeling and adding in a projected LP waterfall, cashflow distribution & fees?
I ask because I get the sense that many of these FoF firms simply don't have large enough teams (and tend not to be the traditional ex-IB folks) to be doing such an in depth analysis for every opportunity that passes across their table, nor would they have the expertise to model as precisely across so many different industries and strategies. Is the analysis more a high-level holistic view of the deal's macro-economics, management team, terms, fees, exit strategy?
Appreciate any color from those with experience. Thnx.
Anyone?
Bump
Also interested
Not very modelling intensive, you look at the analysis done by others.
That's what I've heard too. Anybody know if interviews usually involve a modeling case study or not?
I do not think. They will more likely test your knowledge of the markets and your ability to recognize a good investment.
Depends on the firm. Every single one of the names you listed fully underwrite the transaction themselves. All have a team of analysts and associates to do the financial modeling work. Also keep in mind that maybe 50% of GPs make their actual complete financial models available to LPs.
I would imagine that the interview process at the lower level would involve testing your modeling knowledge in some manner.
Agree, active co-investors refine the operating assumptions and make their own estimates / LBO models. LPs will assume GPs are too bullish and want to build their own scenarios. When you work in a direct PE fund you always receive financials/models from the management/advisors and you make your own assumptions. LPs/co-investors add a second layer.
How life has changed in just about 3 years ...... today, it would be a huge red flag if a GP does not make their model available when looking at a co-invest. LPs have gotten significantly smarter and usually run a number of downside cases on the operating model themselves.
I was on the co-invest side after banking for a year, at one of the largest global names. Yes, we always received a model from a GP. We would never build our own models from scratch. At most, we’d have one chance to interact with management but often we would just be in a larger zoom session with multiple other co-investors where the GP would be leading based on questions the collective group sent. In theory, it sounds like it would still be intellectually rigorous and engaging but it gets repetitive. You see one small part of the transaction process and have a limited timeline to make a decision on whether to allocate capital or not. We may have a board observer seat post-closing and we will get monthly reporting packages but that’s it.
Although you need to have an understanding of LBO models, the role itself is not modeling intensive and you are not really digging into the data room the same. Most work we did felt like it was to check the box and cya. Different firms take different approaches but you will always be “in the backseat” relative to the GP. Dynamics have changed and co-investors get more information but it’s not like we’re playing devils advocate. You’re either in or out and if you’re out, they will simply go to the next LP. Oh, and if you take too long to make that decision it could impact the chances you see another opportunity.
I have been working in a Graduate program at a large asset manager in the UK. I work within their co-investment / secondaries team. I’ve been part of six deals over the past four months, two of which were co-investments and one where I worked with the model received from the GP.
In short, you can get modelling experience, however it is not as involved as I would suspect it would be in direct private equity. I would tweak the model, create separate analysis based on the model, etc., but in most cases, one would not create an LBO from scratch.
Would be interested to hear anyone else’s thoughts on this.
Yep it’s mostly stress testing the assumptions and building a downside case. Essentially sensitivity analysis.
Curious to hear if there’s any difference between a co-invest vs. continuation fund? Roughly the same process just factoring in fees and carry for a continuation fund? Or is there more scrutiny of valuation in a continuation fund process since they are setting pricing versus being a price taker in a co-investment process.
Currently in secondaries advisory but really only interested in GP-leds so wondering if co-invest roles will be effectively the same experience.
There’s a substantial difference, especially mechanically, no?
CV is where GPs isolate some investments and allow new LPs to “buy out” old LPs. Ultimately, they still control the vehicle, it’s investing, managing the company, etc. There are also rules and restrictions that the GP can put on what new LPs can do.
Co-investment is a direct investment made by the LP alongside the GP. The GP has no involvement over the co-investment stake. LPs not only do not have to pay the fees, but have more flexibility with selling their stake, can “vote” with their stake independent of the GP, doesn’t have to exit with the GP when they chose to, etc. which can all substantially adjust returns.
Keep in mind, I’m somewhat uncertain so take with a grain of salt.
Ab et soluta et. Modi praesentium officiis enim quasi. Nobis eum ut tenetur est. Voluptatem hic molestiae optio esse quas quaerat sed ratione. Autem quia ut voluptatem sequi.
Cum porro explicabo dolorum atque. Reprehenderit saepe error expedita ipsum eum sunt provident. Et est eos tenetur officiis.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...