During periods of heightened uncertainty, co-investments can provide a means for private markets investors to gain tactical exposure to well-managed companies, including those in more defensive and resilient sectors, says Dave Brett (pictured), partner & head of co-Investments at Adam Street Partners.
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During periods of heightened uncertainty, co-investments can provide a means for private markets investors to gain tactical exposure to well-managed companies, including those in more defensive and resilient sectors, says Dave Brett (pictured), partner & head of co-Investments at Adam Street Partners.
“Co-investments can quickly lean into or away from particular sectors and geographies as conditions shift, which allows us to focus on companies that we think are better positioned to withstand disruption,” says Brett.
Volatility and public market valuation resets tend to manifest themselves first in secondaries, as institutional investors seek liquidity or look to exit some private market investments because the decline in public equities means their private markets allocations exceed limits on a proportional basis, Brett says.
“Compelling opportunities can then also permeate down to co-investments, which can provide tactical diversification by taking minority positions alongside strong general partners with majority control in companies that are potentially better placed to withstand headwinds.”
As risks have increased globally – driven by inflation, rising interest rates, supply chain disruption, and geopolitics – Adams Street is maintaining its focus on companies in software and technology enabled services, healthcare, changing consumer preferences, and industrials that it believes are poised to benefit from change, dislocation, and growth.
Their emphasis is on seeking innovative companies that provide mission-critical products and services, have sticky recurring revenue models, healthy balance sheets, and insightful and experienced management teams that take a long-term view on shareholder value creation.
One example of a recent commitment that reflects the philosophy was an investment alongside one of Adams Street’s high conviction, sector specialist GPs in an enterprise software provider whose product and services are critical to its clients’ business, regardless of prevailing economic conditions.
“As we review potential co-investment opportunities, we’re paying close attention to issues such as debt leverage, margin pressures, pricing power, and exit options,” Brett says. “Clients want to be assured that we are adequately stress-testing our assumptions for downside risk should conditions become materially worse. Our goal is to ensure that companies we co-invest in can sustain a degree of margin compression and have the structures in place to ride out storms.”
Short-term global uncertainty doesn’t materially diminish the long-term outlook for private markets in general, or co-investments in particular, Brett says. “We believe that private markets will continue to benefit from important tailwinds and that capital will continue to flow into the asset class,” he says.
“For co-investments, we believe that investing alongside private equity managers that have demonstrated their ability to lead in the space by acquiring businesses and investing in their growth is more likely to generate meaningful and consistently strong long-term returns, which we believe will continue to outperform public markets.”
David Brett, Partner & Head of Co-Investments, Adams Street Partners – Dave oversees the sourcing, screening, execution, monitoring, and exiting of leveraged buyout co-investments. Before joining the firm, he served as a senior partner with PPM America Capital Partners, LLC, responsible for marketing to equity sponsors, underwriting buyout co-investments, and managing the underwriting group. He also established their private debt placement group. Prior to PPM, Dave worked with Heller Financial where he structured, originated, and managed a portfolio of LBO debt transactions. He also worked as a senior auditor with KPMG LLP. Dave is Chair of Adams Street’s Co-Investment Committee and a member of the Executive Committee.
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Ranking and award issued October 26, 2022. Ranking and award conducted by Private Equity Wire with pre-selection data provided by Bloomberg. Nominations for all categories were based on annualised performance over a 12-month period from May 31, 2021 to May 31, 2022. Performance categories were based on an analysis of vintage funds from 2017 – 2021. Adams Street did not directly or indirectly provide compensation for inclusion in this ranking. The description and the selection methodologies of rankings and awards are subjective and often vary; additional information on the ranking or award methodologies is available from the sponsor. These rankings or awards do not constitute a recommendation of Adams Street or its services and are not necessarily indicative of Adams Street’s past or future performance.
