Growing numbers of limited partners (LPs) consider co-investments an important part of their overall private equity portfolios, Africa Global Funds has learned.

Rory Ord, Head of RisCura Fundamentals, said: “There has certainly been a trend by LPs in African private equity funds to request access to co-investments.”

“In Africa, most general partners (GPs) are trying to accommodate these requests from LPs, particularly for large LPs, and it is frequently a point of negotiation during fundraising,” he told Africa Global Funds.

Preqin’s latest survey of fund managers and investors reveals the increasing appetite for co-investments among both parties.

Preqin analyzed responses from 320 private equity fund managers and 222 institutional investors and found that 80% of LPs globally have seen their co-investments outperforming private equity funds, with 46% seeing their co-investments outperform by a margin of over 5%.

This level of performance is the biggest draw for investors, with two-thirds of LPs citing better returns as the biggest benefit of co-investing alongside GPs.

Co-investment opportunities from fund managers (GPs) are also becoming more common, with 87% of them either currently offering, or considering offering, co-investment rights to their investors.

For fund managers, co-investments are seen as a way to improve relationships with LPs, gain access to more capital for deals, and improve the chance of a successful fundraise.

Christopher Elvin, Head of Private Equity Products, Preqin, said: “The most common motivation among LPs for co-investing beyond their typical fund commitments is the prospect of better returns, with many anticipating notably higher returns compared to their traditional private equity fund commitments.”

“The majority of LPs surveyed have seen significant outperformance from their co-investments, although many say that it is too early to tell how their stakes will ultimately perform. Direct investments, including co-investments, have increasingly become part of private equity discourse,” he said.

“Significant interest arising from LPs has been matched by increased co-investment opportunities provided by GPs. Provided LPs have sufficient resources available, co-investment opportunities should remain attractive due to their lower fees and greater potential returns,” he said.

Ord added that in Africa, co-investments are primarily done as a way to reduce the overall fees in the LP’s private equity portfolio, as “generally co-investments are exempt from fees”.

“It is also done as a way for LPs to get greater access to the deals that they really like, and think will boost the returns of their portfolio,” he said.

“Co-investments have really increased in Africa over the last generation of funds, so it is too early to tell whether the relative performance of these investments is better than standard PE fund investments,” commented Ord.