Institutions and individual investors in PE
– Institutions: pension funds, endowments, and foundations
– Individuals: family offices, high-net-worth individuals
Four ways of investing
- Direct investing: directly invest in private companies, up to 100% of its share
- Fund investing: invest in a private equity fund that buys private companies
- Co-investing: invest in both funds and directly in its portfolio companies
- Secondary investing: buy and sell existing and future private equity commitments
Co-investing helps investor reduce fee – an example
A company looking for $30M equity investment
Without co-investment
- The fund gives $30M
- The investor participates through investing into the fund
With co-investment
- The fund gives $20M
- The investor gives $10M, in addition to her investment in the fund
- The investor invests in the company both directly and indirectly
- The investor reduces the “two and twenty” fee on the $10M investment
Secondary investing – an example
An investor committing to invest $50M in a private equity fund, with
- $10~20M upfront investment, and
- Remaining capital upon capital calls over the next 7~10 years
During the commitment period, the investor could sell through secondaries:
- Existing deals that the private equity fund was already made
- Future capital calls
The biggest Canadian investor in PE (2015): Canada Pension Plan Investment Board (CPPIB)
- Participates in direct, fund investments, co-investments, and secondaries