Structuring private equity co-investment opportunities in Bermuda

By Sarah Demerling and Sally Penrose

A properly structured co-investment vehicle offers both the fund and its co-investors the ability to effectively manage, deliver and return economic benefit from identified investment opportunities. Bermuda’s legal and governance framework, together with its experienced and knowledgeable professional service providers, facilitates the creation of flexible and economically viable co-investment vehicles within a stable and business-friendly jurisdiction.

Co-investment deal flow tends to track overall private equity market deal flow, with volumes gradually increasing since the 2008 crisis period. A report by Preqin tells us that of the LPs tracked on Investor Intelligence, 43 per cent are actively seeking co-investment rights when committing to funds and a further 11 per cent are considering such opportunities, with fund-of-funds managers accounting for the largest proportion of the co-investors (23 per cent). The Hedge Fund Insight ‘Hot 100’ report released in April 2014, which captures emerging trends in the hedge fund industry, placed co-investment by fund of funds as number 52 in its list, reporting that ‘as one of the initiatives to demonstrate engagement by funds of hedge funds there is a trend to offering co-investment opportunities to clients’. Therefore, we expect to see a rise in the number of funds looking to structure co-investment opportunities.

Co-investment rights give an investor the ability to make a minority investment, directly or indirectly, in a portfolio company. Rather than making a capital commitment to the fund, an investor is given the opportunity to invest on the same terms as the fund…

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