EFTA01458255.pdf

tbrul Pcdttitql, Faro ax'Dt Pt lull Irrrattincitt vuWC ihtti Asse...ltss paspxtios favt/r..^ HriN>rovittvi KlioaS Long or short, Andreas Schmidt? The Global Head of Primary Private Equity discusses opportunities and risks in co-investments Do co-investors have to take a purely passive role? Must fundless sponsors always be ignored? The purest form of co-investment is often seen as Fundless sponson; intend to put little or no equity into being practiced by institutional investors such as medium- the deal into which you are being asked to invest, instead taking sized pension funds and insurance companies. These may a fee or other forms of compensation. Such deals are not for have the institutional patience and implicit confidence in their the faint-hearted, but with appropriately aligned interests there counterparties to limit themselves to a purely passive role is in theory nothing to prevent a deal from a fundless sponsor behind a lead investor. By contrast, many family offices take a outperforming one done with a brand-name fund. This may he a more active approach while co-investing, for example including space to watch if investors become increasingly crowded out of participation in corporate governance. This may not be a more traditional co-investments. completely pure form of co-investment but this large and diverse constituency is important and should not be ignored. Can use of a co-investment fund make sense? En Ironically, when a private-equity platform sells a As co-investments are generally offered on a no-fee basis, can co-Investment fund, it is in fact selling you a blind-pool limited they exhibit adverse selection? partnership (one without any visibility on ultimate investments) ESSI One concern may be that lead investors will offer only pretty much the exact opposite of a normal co-investment. the less attractive investment opportunities to prospective But this can make sense for an investor. In addition to mitigation co-investors (so-called adverse selectioM. One way to mitigate of adverse selection, with one commitment it may be possible this risk would be to co-invest through a private-equity platform to achieve a degree of diversification (in terms of geography, that itself produces a significant flow of investment and industry, manager, size, investment style and risk profile) that demonstrably pursues a highly selective approach with due would be impossible to achieve with a commitment to a single consideration of its own fiduciary responsibilities. manager. Do mid-market funds also offer opportunities? MEI ropmsents a rxminve Ag,swear Eal Mid-market funds may lack the manpower and skills of reprelfaritS a lieptriflailSw0( the mega funds. However they are probably most in need of co-investment and their often under-resourced investor-relations teams may therefore be very keen to maintain close relations with their most active limited partner-3. The large numbers of Past performance is not indicative of future returns. these funds, combined with their relative lack of resources and No assurance can be given that any forecast, investment organization, have meant that they have proved a fertile hunting objectives and/or expected returns will be achieved. Allocations ground for the most sophisticated co -investors. are sublect to change without notice. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect. Offers and sates of alternative investments are subject to regulatory requirements and such investments may he available only to investors who are "Qualified Purchasers- as defined by the U.S. Investment Company Act of 1940 and "Accredited Investors" as defined in Regulation D of the 1933 Securities Act. Alternative investments may be speculative and involve significant risks including illiquidity, heightened potential for loss and lack of transparency. ClO %Ix* ILnimcw Eerier I Soetratni 2e15 htithitagf..... 0 IS CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0118082 CONFIDENTIAL SDNY_GM_00264266 EFTA01458255