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Institutional investors warming to private equity co-investments

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GLOBAL - Limited partners (LPs) such as pension funds and sovereign wealth funds are looking to increase allocations to private equity by co-investing with fund managers, according to a survey by Preqin.

The survey found that institutional investors were seeking new ways to extract value from their private equity portfolios, and that a growing number was setting aside capital for co-investments in the asset class.

Investors have also sought ways of increasing their control over investments, strengthening their relationship with general partners (GPs) and securing lower fees, Preqin said.

According to the survey, more than two-thirds of investors have seen higher returns from co-investments than private equity fund investments, while 13% of respondents said returns were significantly better.

One undisclosed Swiss investor said investors had become "disillusioned" with fund investments, as fund sizes were "getting smaller".

Preqin's survey also showed, however, that institutional investors tended to have a number of conditions that must be met before making co-investments.

While 23% of respondents said they expected board representation alongside a fund in a portfolio company, 16% demanded special fees, while several called for management fees to be waived altogether.

The survey found that 9% of LPs were seeking to decrease allocations to private equity co-investments, with respondents citing new European regulations potentially increasing capital requirements for banks, insurance companies and pension funds.

The survey also highlighted the lack of capital and the lack of human resources as other common stumbling blocks for private equity co-investments.

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