Allocators offer deep insights on co-investing and building portfolios for the future on Day 3
Day 3 of IPEM continued the amazing momentum flowing across the three floors of the Palais des Festivals, where over 5,000 delegates – including 700 LPs, 700 GPs and 2,000 companies have gathered this year, making it by far the biggest IPEM event yet.
Today, two big themes were covered: how allocators are approaching private market investing, and how sustainability and impact is being addressed.
Family affair in private markets
With so much appetite in private markets from the family office community, they play a key role in providing capital to GPs so it was no wonder the audience was keen to hear how they are becoming a bigger force. BlackRock estimates that the average family office invests 35% of capital to private equity; a figure that one would ordinarily associate with large endowments.
So why the interest?
According to Nancy Curtin, Partner, Group CIO and Head of Investment Advisory at Alvarium Investment, it is because private markets simply offer a clear competitive advantage compared to public markets. This gives them the ability to generate superior returns by investing in megatrends like Artificial Intelligence and cybersecurity, with Curtin also adding that “it is in the DNA of families to understand private investments and generate long-term returns as patient capital.”
As for how family offices are building their manager programmes, some of the key criteria they look for from GPs include: proprietary deal sourcing; profitability and value creation; and evidence that GPs are willing to think about how to monetise investments and provide liquidity. One key point made was that, as family offices become more dominant players in private markets, they need to be responsive, especially when it comes to large, hard to access VC and PE managers. “We meet as an investment committee every week, not once a quarter,” remarked Curtin. Sackville Capital’s Stephen Wyprysky said that they are building a streamlined programme of 15 or so GPs “where the aim is to do more with less. That’s definitely resonating with managers.” When asked about doing direct deals, he cautiously replied that they would, in time, “but we don’t want to put the cart before the horse”.
Different tactics and approaches for building co-investment programmes revealed that allocators are as keen as ever to pursue such opportunities, with Pantheon’s Francesco di Valmarana discussing how mistakes were made pre-GFC, and how today, the bigger number of GPs offering co-invests means they are able to build diversified exposure of up to 50 different deals in a single co-invest fund. The issue of passive versus active co-investment was discussed. While the former approach gives investors the possibility of carrying out several investments by relying on the GP’s expertise, Golding Capital’s Matthias Reicherter warned that if investors get too active, and their egos get in the way, it can risk harming relations with GPs.