In this podcast, Dave Brett, Partner & Head of Co-Investments, and Michael Taylor, Partner, Co-Investments, discuss dynamics that are influencing the co-investments market with Thomas Kim, Senior Investment Officer with the San Bernardino County Employees’ Retirement Association.
Key Takeaways
- The macro environment remains uncertain, which makes it difficult to underwrite the medium- to long-term outlook for companies
- Deal flow momentum has improved over the past 12 months as business owners moderate valuation expectations, leading to improved liquidity as exit options begin to normalize
- LPs are being increasingly discerning about the private equity managers they allocate to, creating a strong bifurcation between high-quality firms that can hit fundraising targets, and under-performing managers that are struggling to raise capital
- Co-investments play a vital role in the mid and small market by providing sponsors the capital they need to complete transactions in a relatively tight timeline, allowing the lead GP to be competitive in auction processes
- Co-investments are a critical way to build lower volatility portfolios with non-dilutive diversification across time, industry and specialization, in sectors benefiting from secular growth, dislocation and change, including technology, healthcare, advanced manufacturing, and shifting consumer preferences
- Especially in periods of uncertainty, it is prudent to co-invest in durable companies in less cyclical sectors that can demonstrate expanding EBITDA margins emanating from strong and sustainable revenue growth. Adams Street’s co-investments focus is on opportunities where we believe the majority of upside potential will likely be generated by fundamental company performance rather than financial engineering
