Australian LPs strengthen GP ties through co-investment - AVCJ Forum

“When we moved to a more direct strategy, we were a relatively small investor from Australia trying to get into some access constrained opportunities,” Andrew Major, general manager for unlisted assets at HESTA, which has A$46 billion ($32 billion) in assets globally, told the AVCJ Australia & New Zealand Forum. “We were selling our prospects as an LP as much as they were selling to us. It comes down to developing partnerships and making sure GPs know we can add value to them.”

HESTA sought to prove its worth across several areas: being responsive when presented with co-investment opportunities; being respectful yet challenging when difficult situations arise; and joining – and fully participating in – advisory boards as a means of differentiating itself.

This view was echoed by Wendy Norris, deputy CIO responsible for private markets at Future Fund, Australia’s A$147 billion sovereign wealth fund. “It has to be a two-way street,” she noted. “Co-investment helps you consolidate that depth of relationship.”

Modes of engagement vary considerably based on an LP’s internal resources. Groups with limited bandwidth tend to favor downstream syndication – taking a piece of the equity once a deal is signed – but others like to get involved earlier, participating in the due diligence process and underwriting the transaction alongside the manager. From a GP perspective, it helps to know which LPs are most likely to follow up on an opportunity and how they will participate.

“Some LPs are happy to follow us into whatever investment we have decided on with limited due diligence while others want to get into it more,” said Shannon Wolfers, a managing director at Pacific Equity Partners. “The main thing we focus on is having consistency in the prosecution of outcomes.”

Colinton Capital, a middle market private equity firm established by Simon Moore, who previously led Australian investment activity for The Carlyle Group, completed three deals last year, each of which featured a significant amount of co-investment. While Carlyle has the capacity to fully underwrite a transaction, Colinton needs to have co-investors lined up prior to the sign-off. As a result, their engagement with the GP is deeper.

“At Carlyle, apart from really large co-investors like GIC Private, the co-investors were not involved in anything they were co-investing in,” Moore said. “But we have an active dialogue with our co-investors, and they ask how they can help.”

The likes of AustralianSuper and Myer Family Investments have taken part in multiple Colinton deals. Familiarity facilitates the process, with Moore noting that “by deal three it was much more carefully choreographed.” Communication is a key consideration. GPs want transparency from LP co-investors in order to better understand their approach to due diligence, so they can set realistic timelines with vendors and advisors.

Adamantem Capital has also brought several Australian LPs into deals as co-investors, and Andrew Bullock, a managing director with the firm, said it had been a positive experience. “They can be very clear on the timetable they are working to and the level of information they need to sign off,” he explained. “This means you can manage the process accordingly and manage expectations on the vendor side.”

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• Topics
• Australasia
• Buyouts
• LPs
• Australia
• Co-investment
• HESTA
• Future Fund
• Colinton Capital Partners
• Adamantem Capital
• Pacific Equity Partners
• AVCJ Events