GPs increasingly ‘agnostic’ on secondaries, co-investments as support capital

The distinction between secondaries and co-investments is becoming increasingly irrelevant, according to Patrick Knechtli and Colin Burrow from Aberdeen Standard Investments.

Secondaries firms are at a disadvantage in putting up silos between secondaries and co-investments, according to two senior executives from Aberdeen Standard Investments.

General partners need capital for a particular situation and are generally ‘agnostic’ on its source, according to the Edinburgh-based asset manager’s head of co-investments Colin Burrow.

“They want a good partner, ideally an [existing] LP, who understands their business and has that relationship, whether it’s a single-asset continuation fund or a midstream co-investment,” he told Secondaries Investor.

Aberdeen Standard has team members who spend half their time on co-investment and half on secondaries, a trend that will accelerate as the pipeline of GP-led deals grows, said head of secondaries Patrick Knechtli. The types of co-investment deals the firm targets share characteristics with many single-asset secondaries deals, making the crossover easier.

“On the co-investment side, we like situations where we are backing an incumbent GP,” Knechtli said. “This might be where a sponsor owns a particular business, is looking to do an add-on and raise new capital from co-investors. They’ve been in a business for a while, got beyond their initial 100-day plan and really understand what they’ve bought.”

The co-investment team brings expertise in due diligence, particularly the ability to triangulate GP relationships and other forms of third-party diligence to create a more detailed picture of an asset, Knechtli added.

Aberdeen has completed at least one GP-led process during lockdown, including a multi-asset restructuring and fund commitment involving a US-based GP, according to Knechtli.

There were $5 billion of single-asset deals in 2019, up from around $2 billion the year before, according to data from Evercore. They accounted for 20 percent of GP-led volume in 2019, compared with 9 percent in 2018.