In a research note published Tuesday, Cambridge Associates says investors need to “consider how different types of investments may perform differently,” when evaluating private equity co-investments. The most likely co-investment opportunities typically produce consistent returns, but are less likely to produce a large number of “big wins.”
As shown by the firm’s Global Private Equity index, the dispersion between the top and bottom performers narrows as deal sizes increase.
Cambridge notes that limited partners are less willing to pay a general partner “traditional fund fees” on larger transactions – instead requesting co-investment opportunities.
A lower risk/return profile and reduced management fees or carried interest on these types of deals can potentially “be a wash in terms of return expectations.”
