Private equity is continuing to attract investor capital in 2018, despite increasingly tough conditions for buyouts. With new fundraising contributing to an already record amount of dry powder, PE firms are facing a competitive dealmaking landscape and rising valuations for targets. Volatility across global markets raises the question of what the future of deals looks like for PE firms.
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Toppan Vintage question: What types of deals do you expect to see more of in the next 12 months? Leading deal experts weigh in...
Co-investments are the overwhelming top choice for respondents when asked about the kind of PE deals they expect to see more of in the next 12 months. Some 52% cite this type of transaction, with joint venture and asset acquisitions sharing second place (36% of respondents each).
As investors increasingly seek out lower fees and more transparency in their PE deals, co-investing alongside general partners has become a soughtafter option. In 2016, 42% of limited partners were participating in co-investments and 58% of PE firms offered the possibility, according to a Preqin survey.
A managing director at one of the top 10 alternative asset managers globally by AUM said co-investing can help address the challenge of high valuations, since investors are willing to put up more funds for a deal when the terms are more favorable.
“With high valuation as an obstacle for PE firms, co-investments can partially be a solution,” he said. “Co-investments mean splitting the capital that is being invested, which also means splitting the risks and losses. The reason I call it a partial solution is because when a high valuation investment does well, the returns are higher too, and in this case the returns would be divided too.”