Co investing strategy has become an increasingly popular approach for investors looking to boost returns and gain access to deals. This strategy allows investors to partner with fund managers or other investors to invest directly in assets, while also investing in a fund. By leveraging capabilities and resources, co-investors can benefit from lower fees, stronger alignment of interests, and access to specialized investments. To utilize co investing strategy effectively, investors need to assess deal flow, conduct proper due diligence, negotiate favorable terms, and manage relationships carefully. When executed well, co investing can enhance diversification, return potential, and networks significantly for investors across the globe.
Co investing provides investors direct access to deals at lower costs
A major benefit of co investing strategy is the ability to invest directly into deals alongside funds, gaining exposure at lower costs. By leveraging capabilities of fund managers in sourcing and executing deals, co-investors avoid substantial time and resource commitment needed to invest independently. Co investing also eliminates layers of fees charged by fund managers. According to Preqin research, more than 80% of investors utilize co investing to reduce fees. With significantly lower costs through co investment arrangements, investors can boost net returns.
Co investing strategy enables investors to diversify portfolios effectively
Portfolio diversification is a key goal of co investing strategy for investors. By co investing across multiple assets and industries, investors can reduce concentration risk and volatility. Co investing in alternative assets like real estate, infrastructure, and private equity provides further diversification benefits. According to Bain & Company, co investing has increased private equity diversification, with co investment used for 21% of buyout deals globally in 2014. Proper diversification through co investing leads to more balanced portfolios and lower risk-adjusted returns.
Stronger alignment of interests between investors and fund managers
By co investing alongside fund managers, interests between investors and managers align more closely. Fund managers are incentivized to source better deals and add more value when investors co invest in the same deals. Investors also gain more transparency and control in deals through direct exposure. According to a Greenwich Associates study, about 77% of investors felt co investing arrangements provides stronger alignment. This ensures fund managers remain disciplined in their investment approach when co investing.
Access to specialized investments supports higher return potential
Co investing opens up opportunities for investors to access niche, complex deals that require local expertise and networks. Investors can leverage capabilities of their partner fund managers to invest in specialized assets with higher return potential. Co investment options also provide investors access to sectors and regions that may be difficult to access independently. According to Preqin, the largest proportion of co investments occur in North America and Europe, focusing on buyouts and venture capital deals.
Co investing strategy allows investors to invest directly in deals at lower costs while leveraging expertise of fund managers. By enhancing diversification, alignment, and deal access, co investing can boost risk-adjusted returns for investors substantially. To maximize benefits, investors need to be selective in partnerships, negotiate terms prudently, and collaborate effectively with their co investment partners.