All photography provided by Jared Chambers
Fiduciary Co-investment Partners ("FCP") is a London-based alternative investment firm who's mission is to deliver institutional grade co-investments to Institutions, private banks, wealth managers and their UHNW clients on a deal-by-deal basis.
Drawing on its Founding Partner's decade of experience co-investing alongside dozens of the world's leading alternative investment managers, FCP is a new private markets platform designed to provide institutions, family offices, and UHNWIs access to the highest quality co-investment opportunities otherwise unavailable to them.
In addition, FCP offers its clients the ability to share the costs of an institutional grade sourcing and execution platform by essentially spreading the costs of its team across their aggregated demand and portfolios.
'Buy-side', not 'Sell-side', approach
FCP's Partners plan to commit a substantial amount of capital towards every transaction, regardless of risk profile or asset class. Having this 'skin in the game' ensures a strong alignment of interest with clients, driving the firm to take a fiduciary, 'buy side' approach as opposed to viewing opportunities with a 'sell-side' mentality driven by brokerage or agency fees.
the challenge with fund investments
'Upper quartile' funds in alternative asset classes (Private Equity, Private Debt, Real Estate and Infrastructure) have consistently shown the ability to deliver accretive and uncorrelated performance to large, well-diversified investment portfolios. Designed with large institutional investors in mind, however, the limited partnership structures they typically employ are not well suited to the needs of family offices and UHNW investors for the following reasons:
- Fund's 'blind pool' nature and long investment periods mean that decisions to back or 're-up' with a particular manager are typically only made once ever 4-5 years. The best managers often have minimum commitment amounts of $10m or more.
- Limited Partners' are expected to maintain significant liquidity reserves in order to meet substantial capital calls at short notice. Track records and other historical or projected performance measures of a particular fund cannot take this 'opportunity cost of liquidity' into account.
- The majority of capital committed by LPs is typically only returned towards the end of a fund's 10-12 year life; earlier access to liquidity requires resorting to opaque secondary markets, where illiquid limited partnership interests can trade at substantial discounts in periods of macroeconomic dislocation.
co-investments vs. fund investments
Co-investments alongside these same 'upper quartile' managers provide a potentially attractive alternative as follows:
- The higher velocity of investment opportunities provide a more dynamic way to adjust one's portfolio as the macro environment and other factors change over time.
- Investors decide where, when and how much to contribute towards a particular deal, whenever it suits them, taking into account their current liquidity needs.
- "Piggy backing" on a lead manager's due diligence can substantially lower an LP's execution costs required to complete an investment.
- Typical holding periods average closer to 5 years, and lower contingent 'committed capital' reserves mitigate the requirement to access secondary markets for liquidity in times of financial stress.
Solving the access & execution challenge
Co-investments alongside the highest quality lead managers are, unfortunately, not easily accessible. Until now, the highest quality co-investments have typically been offered to large existing fund LPs first, subsequently (in the case of overflow) to perspective investors such as pension funds, insurance companies, sovereign wealth funds, funds-of-funds, and only finally to smaller, less strategic investors such as family offices. Smaller investors may be experiencing significant deal flow, but they must ask themselves serious questions about the quality of the deals and the risks represented by the underlying 'lead managers', who are, more often than not, promotors or 'fundless sponsors' who represent significant counterparty risk.
Although co-investment execution and due diligence is lighter than that required for a similarly sized direct investment, the reality is that active and leading players in the institutional co-investment world still employ well-resourced teams numbering into the dozens. Very few family offices or UHNW individuals can replicate a similar execution bench on an economically viable basis.
FCP's team comprises of individuals who have sourced hundreds of opportunities per year, and executed and monitored dozens of successful co-investments over the last decade. FCP spreads the costs of its institutional grade platform across a much larger AUM base than any one of its individual clients can provide. Furthermore, it essentially aggregates its clients demand, creating a more robust and likely preferable negotiating counterparty from the lead managers' perspective.