The desire to carry out co-investments is matched by fund managers. A survey of 75 real estate investment managers by research firm Preqin in March last year found 57% expected to offer more co-investment opportunities to investors in 2016 than they did in 2015, while just 2% expected fewer. Stronger client relationships and additional sources of capital were cited by the managers as the desirable reasons for co-investments.
Having a quick deposit of a large sum of money from a single pension fund helps a fund manager’s nimbleness in winning a deal to buy a private asset. For this reason Aviva Investors’ private assets platform was designed with the intention of easily incorporating large chunks of pension fund money to sit alongside internal insurance fund money and pooled investment fund money.
A common pathway into any such deal is for a pension fund without a fund management licence to have a pre-arranged agreement with a fund manager for it to make purchases on its behalf. This is how the £30bn HSBC Bank Pension Trust accesses co-investment, by having agreements that give a fund manager the ability to buy certain assets, within certain price ranges.
Mark Thompson, chief investment officer of the fund, says: “They would not have to ring us up because they already know we would want the asset and we have given them the mandate to buy it.”
Such deals are often based on trust. “There are a number of managers over the years we have built close relationships with. We are still their client, but we see the relationships more as partnerships,” he says.
Thompson has also seeded or topped out new funds gaining fees which he describes as “10s of a percent cheaper” than the rate for other investors.
While this might be typical of many co-investments in the UK market, it is worth making a distinction with the 16 UK pension funds who have FCA-regulated fund management licences and can initiate deals and co-invest in the fullest sense of the word. The £56bn Universities Superannuation Scheme (USS) made full use of this licence when it purchased US$3.1bn loans to medium-sized European companies from Credit Suisse. The deal is groundbreaking for its size and also for the interest USS has shown on drawing in other pension funds to share in this activity.
