The view from the Co-investments team – Peter Knight Q1 2024

News: Insight & Opinion | 27 March 2024

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The appeal of the deal-by-deal model has gone mainstream, says Peter Knight 

At Connection Capital, we’ve recognised the value and the potential for growth in co-investments for some time, but now it’s clear that the deal-by-deal model has well and truly entered the European private equity market consciousness. Several articles that have appeared in the mainstream financial press recently highlight that momentum in the marketplace in 2024 is really gathering pace, with many big-name fund managers adopting this strategy. 

Fundraising difficulties have prompted more and more fund managers to rely on raising capital on a deal-by-deal basis, and having seen what an attractive approach it can be, they continue to factor co-investment into their strategies going forward. Some are even choosing solely to operate on this basis, pivoting away from funds altogether. According to data from private equity (‘PE’) advisors Triago published in the Financial Times, the amount of capital deployed in such deals is five times higher than five years ago, hitting a record $31bn (£24bn) last year. 

We get good traction with managers because we’re supportive, our investment model is flexible, and because they appreciate the cheque sizes we write (which is larger than most individual investors can invest but smaller than most institutional investors are willing to consider). That capability has been very well received by the market. This creates an increasingly symbiotic dynamic with our funds business, as our links with fund managers become broader and deeper. 

All of these underlying drivers mean that the volume of opportunities coming across our desk is increasing. And as our reputation and relationships with fund managers go from strength to strength, we’re getting access to larger deals.  

Our investment last year in BMS, a £1.6billion global specialty insurance broker alongside Presentation Capital Partners, is a case in point. The fact that we can offer opportunities of this scale alongside smaller investments with high-growth potential, such as our investment in Liberis last year, a UK late-stage venture capital business that provides tech-enabled SME finance alongside Blenheim Chalcot, is one of the major benefits of our model.  

We are also currently looking at a number of new prospects including an alternative asset management business and a premium branded grocery business. 

As co-investment becomes an established part of the PE investment landscape, it’s something that all investors should have on their radar: ignoring co-investment options could mean missing out on a key part of the opportunity set. With more and more investors viewing co-investing as a legitimate way of deploying capital into alternative assets, and amid cautious optimism that activity in the PE market in general is showing signs of picking up, these are exciting times to be active in this space.