Just nine per cent of LPs who currently express an interest in co-investments expect to reduce their allocations to these investments in the future, a Preqin study reveals.
A significant proportion are championing the perceived benefits of co-investment, which include better control over investments, the strengthening of GP relationships and lower fees.
Two-thirds of investors have also seen higher returns from their co-investments than their private equity fund investments, while 13% stated that returns were significantly better.
Over 100 investors with an interest in co-investments were interviewed, and almost a quarter of those contacted are active co- investors on a regular basis.
Investor Appetite for Co-investments – Key Findings
Some 63% of investors that actively co-invest do so on an opportunistic basis, while 39% of LPs that actively co-invest set aside a separate allocation for co-investments, while 61% allocate to co-investments 
at the expense of their private equity fund investments.
Fund of funds managers account for the largest proportion of the co-investor universe – 23%, while 44% of investors with an interest in co-investment are based in North America, 31% in Europe and 25% in Asia and Rest of World.
Some 66% of LPs with an interest in co-investment have over USD250m allocated to private equity, while a totla of 75% of LPs that have an appetite for co-investment ask GPs for co-investment rights when making new fund commitments. And 38% of investors that currently co-invest will only do so alongside a GP with which they already have an existing.
“Investors are increasingly keen to co-invest with GPs in order to reap the perceived benefits, including better returns, better transparency and better control over investments,” says Emma Dineen – Manager, Private Equity Investor Data. “At the same time, many GPs are now more willing to offer co-investment rights in order to secure commitments to their funds, while using co-investor capital in deals allows them to invest in larger deals that they may not be able to access with fund capital alone.
“With 65% of LPs active in this space planning to increase their allocations to co-investments going forward and a growing number seeking to start their own co-investment programs, it is clear that we will see an increase in the level of activity in this area in the future.”
