{ "docId": "019dd923-5ca1-7489-b635-efee526b2162", "docSlug": "6ebe7bc3c470921e", "documentTitle": "Global Private Equity Report 2015", "authorId": "Bain", "authorName": "Bain", "documentKindSlug": "consulting-deck", "documentKindLabel": "Consulting deck", "sourceTypeSlug": "strategy_consulting", "sourceTypeLabel": "Strategy consulting", "presentationDate": null, "orientation": "portrait", "aspectRatio": 0.773, "pageNumber": 40, "pageCount": 68, "prevPage": 39, "nextPage": 41, "slideType": "other", "function": "summarize", "density": "overcrowded", "nDataPoints": 6, "notes": "This is a page of text from a report, not a typical slide. It contains qualitative analysis and some quantitative data points embedded in the text.", "elementsJson": [ "paragraph" ], "metadataConfidence": 0.9, "imagePath": null, "slideHref": "/slides/019dd923-5ca1-7489-b635-efee526b2162/40", "deckHref": "/decks/019dd923-5ca1-7489-b635-efee526b2162", "deckJsonHref": "/decks/019dd923-5ca1-7489-b635-efee526b2162.json", "deckAnchorHref": "/decks/019dd923-5ca1-7489-b635-efee526b2162#slide-40", "components": [ { "bbox": null, "kind": "callout", "text": "Accounting for roughly 10% of PE assets under management, co-investing is currently the most common way for LPs to put shadow capital to work.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd951-b48c-7655-b2ff-4fa50feba1df", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.065, "w": 0.764, "x": 0.118, "y": 0.887 }, "kind": "paragraph", "text": "With experiences like that, it is easy to understand why co-investing has gained popularity. But as promising as it looks, co-investing programs have difficulty accommodating everyone’s goals. For their part, GPs cannot make co-investment an option available on every deal or for every LP. To keep the trust of their LPs, they must set transparent and clear rules for offering co-investment opportunities, but that is difficult to do since co-investment", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "02598ab7-8471-4640-8678-8cb2738bc26b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.095, "w": 0.764, "x": 0.118, "y": 0.532 }, "kind": "paragraph", "text": "Co-investments. Accounting for roughly 10% of PE assets under management, co-investing is currently the most common way for LPs to put shadow capital to work. Co-investing appeals to LPs that want to exercise more discretion over where and how their money is deployed, without requiring the deal sourcing, due diligence and portfolio management skills that a seasoned GP would be expected to possess. They also like the no-fee or lower-fee structure that co-investing offers.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "45e38545-e95b-4d83-9acb-d43178708b2e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.175, "w": 0.764, "x": 0.118, "y": 0.347 }, "kind": "paragraph", "text": "But for all of their many benefits to GPs, separately managed accounts present some risks. To attract that new money, GPs are discounting the prices they charge for their services, reducing fees and carry from the standard “two and twenty.” For many GPs, the trade-off of lower fees in exchange for a larger, steadier volume of assets under management can look appealing, but accepting it can put GPs in a bind. By charging less, GPs can justify holding assets longer and settling for lower returns, but if they fall too far short, they risk jeopardizing their relationships with LPs. There is also potentially a price to pay for success. GPs that deliver performance in discounted, separate accounts that meet or beat the returns they generate in standard funds risk cannibalizing their premium-priced products. Why pay full price when there is little or no difference in results?", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "72fae409-53bb-40ac-901e-a5892961a1fa", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.115, "w": 0.764, "x": 0.118, "y": 0.762 }, "kind": "paragraph", "text": "Co-investing has attracted increased attention in recent years as LPs have gained confidence in the higher returns it can yield. As recently as 2012, of the LPs that Preqin interviewed, only 13% believed that returns from co-investment were significantly better than those of a typical PE fund. In Preqin’s latest round of interviews in March 2014, 52% of LPs reported that their co-investment returns were far higher than the returns their funds generated and none said that they were lower. With that proven track record, 77% of the LPs said they are now co-investing and more than half said they planned to do more of it in the future (see Figure 2.10).", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c54a8775-dfa5-4669-aa61-1ab0f274ca23", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.012, "w": 0.03, "x": 0.485, "y": 0.971 }, "kind": "paragraph", "text": "Page 34", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "cb9b1e8e-50a0-45fd-8612-5c3ebbda7a13", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.012, "w": 0.388, "x": 0.306, "y": 0.057 }, "kind": "paragraph", "text": "Global Private Equity Report 2015 | Bain & Company, Inc.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "d0ae01f4-4825-4e9f-bde8-1a83dcaa6185", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.115, "w": 0.764, "x": 0.118, "y": 0.637 }, "kind": "paragraph", "text": "Increasingly, when GPs approach LPs to get them to sign on to a new fund, LPs are making the opportunity to participate as co-investors a condition of their agreement. In a typical arrangement, a GP pitches opportunities to LPs to put up money on a deal-by-deal basis. Co-investors can choose to actively select the deals in which they will participate or simply agree to join forces with the PE firm in all of its deals. When it comes to selecting the investment target or actually managing assets after they are acquired, however, the co-investor’s role remains a passive one: It is the PE firm functioning as a conventional GP that sits in the driver’s seat.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "d792a0aa-3303-446b-ac64-fd2ed76266ca", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.215, "w": 0.764, "x": 0.118, "y": 0.123 }, "kind": "paragraph", "text": "LPs and GPs have tailored some large and interesting relationships around separate accounts in recent years. For example, the Teacher Retirement System of Texas (TRS) partnered in 2011 with Kohlberg Kravis Roberts (KKR) and Apollo Global Management to set up a separate $3 billion account with each that aims to steer TRS’s capital into buyouts, real estate and debt investments. In 2012, CalPERS, the pension plan covering California state workers, placed $500 million in a Blackstone Tactical Opportunities account with a flexible mandate to invest across a wide range of asset classes. In Europe, Germany’s largest pension fund, Bayerische Versorgungskammer (BVK), cemented its seven-year relationship with the UK-based PE firm Pantheon last year: The fund, which invests on behalf of public-sector employees in the state of Bavaria, set up a €500 million dedicated account that will seek out, among other things, buyout, growth and venture capital investment opportunities. This arrangement, which will extend to 2017, will allow BVK to consolidate its holdings around a select core group of asset managers.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "e9641444-ef21-4f28-a950-ffb87c59d1aa", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [ { "name": "Audience Definition", "slug": "audience-definition", "agent": "Storyteller", "layer": "slide", "matchId": "d8b24ee4-b298-4a05-bad2-71dcbfe23dc9", "evidence": "LPs and GPs have tailored some large and interesting relationships around separate accounts in recent years.", "confidence": 0.7 }, { "name": "Narrative foundations (from the Storymakers methodology)", "slug": "narrative-foundations", "agent": "storyteller", "layer": "slide", "matchId": "a187af8d-1ad1-45d0-a2ae-a9184566a866", "evidence": "For example, the Teacher Retirement System of Texas (TRS) partnered in 2011 with Kohlberg", "confidence": 0.6 }, { "name": "So What? Test", "slug": "so-what-test", "agent": "Architect", "layer": "slide", "matchId": "019dd95a-173e-703c-8768-0a255fcceda3", "evidence": "Callout: 'co-investing is currently the most common way for LPs to put shadow capital to work'", "confidence": 75 } ], "frameworks": [], "arcBeats": [ { "to": 51, "from": 29, "beatId": "019dd95a-07a4-702a-b0b2-8d12c1cef02c", "arcName": "The Consultant's Gambit", "arcSlug": "consultants-gambit", "beatName": "Solution & Approach", "beatSlug": "consultants-gambit-solution-approach", "evidence": "Section 2 four forces: capital superabundance, shadow capital, US, Europe", "position": 3, "confidence": 82, "parentBeatName": "Turn", "parentBeatSlug": "turn" }, { "to": 58, "from": 29, "beatId": "019dd95a-07a5-761b-9143-8438c4caf57f", "arcName": "The Triple Take", "arcSlug": "triple-take", "beatName": "The Implications (So What)", "beatSlug": "triple-take-the-implications-so-what", "evidence": "Section 2: dynamics that will shape PE in 2015+", "position": 2, "confidence": 70, "parentBeatName": "Reflection", "parentBeatSlug": "reflection" } ], "loops": [ { "to": 44, "from": 38, "name": "Cost Of Inaction", "slug": "27-cost-of-inaction", "bestFor": "Urgent budget requests, compliance, risk mitigation", "matchId": "019dd95a-088c-724c-b312-3fe1ca377e1a", "evidence": "85% of LPs see better co-invest returns -> growing direct investing -> 'Lessons for GPs'.", "position": 6, "objective": "Agitate the rising threat of LP shadow capital and what GPs must do", "structure": "The Status Quo -> The Hidden Costs Accumulating -> The Future State of Inaction -> The Tipping Point", "confidence": 72, "description": "Quantify what happens if the audience does nothing" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }