Many LPs requested co-investment deals this year, but few executed those opportunities in 2018, according to Hamilton Lane’s GP Dashboard for 2018/2019.
More than 105 GPs, two-thirds (66 percent) of them from North America, with a total of $1.2 trillion assets in management, participated in the survey.
Indeed, a majority of GPs whose LPs asked to see co-investment deals reported that LPs executed on those deals 24 percent of the time or less. Only 21 percent of GPs said their LPs executed on co-investments half the time or more, the report said.
Speed and certainty of close ranked highest in determining which LPs were offered co-invest opportunities, the report said.
GPs operate under tight timelines, often a few weeks, on deals and want speed from their LPs, said Brian Gildea, head of investments at Hamilton Lane. They also want an early indication from LPs whether they are likely to participate in the deal, he said.
GPs want a good capital partner. Deal underwriting and LP reputation are added benefits but not the main focus, Gildea said.
Indeed, it is tough to be a LP in this environment, he said. Fundraising and co-investment timelines are getting shorter and can pressure LPs that are constrained by approval processes that can take weeks or months, Gildea said.
LPs are looking to balance between trying to get allocations to preferred managers and co-investment opportunities, reviewing new managers, data and analytics on their portfolio and factors like ESG, he said. “Bringing all these parts together is a little slower than what is being said at conferences,” Gildea said.
Relationship size and previous co-investment experiences with LPs were other top factors GPs considered when offering co-investment opportunities to their LPs, the report said.
These factors were not expected to change in 2019, but co-investing could become harder because of higher market volatility, Gildea said. Even though they want more co-investments, LPs may be unwilling to execute in a more volatile market, he said.
Action Item: Request a copy of the 2018/2019 GP Dashboard here https://bit.ly/2CrDevn