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Flashcards in CAIA - CIT 6 - Co-Investments Deck (25)
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1
Q

Compared to private equity funds, co-investments have ___ costs and potentially ___returns.

A

Compared to private equity funds, co-investments have lower costs and potentially higher returns.

2
Q

Investors have 4 key ways to pursue co-investing:

  1. F
  2. D
  3. S
  4. D
A

Investors have 4 key ways to pursue co-investing:

1. Fund of funds

2. Diversified co-investment

3. Single GP co-investment fund

4. Direct

3
Q

Co-investments compose ___-___% of many FoFs

A

Co-investments compose 5-15% of many FoFs

4
Q

FoFs typically suffer ___ losses but have ___large wins.

A

FoFs typically suffer fewer losses but have fewer large wins.

5
Q

FoFs that charge a ___ ___ across investments have an incentive to include co-investments.

A

FoFs that charge a flat fee across investments have an incentive to include co-investments.

6
Q

In ___-___co-investments funds, investors invest in a basket of co-investments that an advisor or FoF sources.

A

In multi-sponsor co-investments funds, investors invest in a basket of co-investments that an advisor or FoF sources.

7
Q

Multi-sponsor co-investment funds typically have a ___% / ___% management fee.

A

Multi-sponsor co-investment funds typically have a 1% / 10% management fee.

8
Q

The performance of multi-sponsor co-investment funds has been ___.

A

The performance of multi-sponsor co-investment funds has been mixed.

9
Q

Single-sponsor co-investment funds ___ outperform the GP’s main fund.

A

Single-sponsor co-investment funds often outperform the GP’s main fund.

10
Q

The traditional approach to co-investing is ___.

A

The traditional approach to co-investing is directly.

11
Q

The ___ ___ of co-investing typically results in ___-performance.

A

The lower cost of co-investing typically results in out-performance.

12
Q

Co-Investments typically ___ J-curve.

A

Co-Investments typically reduce J-curve.

13
Q

The benefits of co-investing:

  1. B
  2. J
  3. H
  4. T
  5. S
A

The benefits of co-investing:

1. Better risk-return

2. J-curve mitigation

3. High efficiency

4. Tailored

5. Strengthen GP/LP relationship

14
Q

There are a number of challenges to implementing direct co-investment:

  1. S
  2. S
  3. T
  4. D
  5. A
  6. B
A

There are a number of challenges to implementing direct co-investment:

1. Skillset

2. Sourcing opportunities

3. Timing

4. Decision-making process

5. Adverse selection

6. Benchmarking

15
Q

Capital in the GP’s main fund may be scarce because:

  1. E
  2. E
  3. O
  4. G
A

Capital in the GP’s main fund may be scarce because:

1. Early or doesn’t have enough commitments

2. End of the investment period

3. Opportunity larger than strategy

4. GP nearing concentration limit

16
Q

Co-investors need to have ___ and ___processes in place since they will have little time to make a decision on co-investments.

A

Co-investors need to have evaluation and approval processes in place since they will have little time to make a decision on co-investments.

17
Q

LPs should be mindful of ___ ___risk related to the possibility that managers offer less attractive deals.

A

LPs should be mindful of adverse selection risk related to the possibility that managers offer less attractive deals.

18
Q

Some reasons GPs may have for seeking co-investment:

  1. O
  2. C
  3. S
  4. P
  5. S
A

Some reasons GPs may have for seeking co-investment:

1. Opportunity is too large, but attractive

2. Certain deal will close

3. Share outperformance with LPs instead of competitors

4. Prefer passive partners

5. Stronger relationships with LPs

19
Q

Direct co-investments as a whole have slightly ___ their main funds.

A

Direct co-investments as a whole have slightly underperformed their main funds.

20
Q

The best time to co-invest is likely in ___ markets.

A

The best time to co-invest is likely in volatile markets.

21
Q

Investors who outsource co-investments to fund managers may exacerbate the risk of ___, since outsource managers have an incentive to invest capital within a certain time period.

A

Investors who outsource co-investments to fund managers may exacerbate the risk of procyclicality, since outsource managers have an incentive to invest capital within a certain time period.

22
Q

The best way to measure co-investment performance is to compare ___ performance with private investments made in the same ___year.

A

The best way to measure co-investment performance is to compare gross performance with private investments made in the same calendar year.

23
Q

Co-investments in venture-backed companies are typically offered at ___-stage rounds and may ___.

A

Co-investments in venture-backed companies are typically offered at late-stage rounds and may underperform.

24
Q

Co-investors face allocation and funding complexities. There is a risk that funds will not be ___ ___or that ___-___investments will be needed.

A

Co-investors face allocation and funding complexities. There is a risk that funds will not be fully deployed or that follow-on investments will be needed.

25
Q

The key factors that can improve co-investment outcomes:

  1. R
  2. R
  3. A
A

The key factors that can improve co-investment outcomes:

1. Risk management

2. Resources

3. Avoid adverse selection