Ex-ADIA Pro: Passive Co-Investing a ‘Fool’s Errand’

The former head of private equity at one of the largest investors in the world, Abu Dhabi Investment Authority, says he questions the resource-light approach to co-investing that some limited partners are taking. In an exclusive interview with Privcap, James Kester, who led private equity at the estimated $600 billion sovereign wealth fund from 2010 to 2013, said: “Being a passive co-investor in post-close syndications doesn’t take much resourcing and many investors do that. Quite frankly, it’s a bit of a mystery to me as to why they choose to participate in co-investing that way. I think the raison d’etre I hear most is that it is a way to lower their overall cost of owning private assets. I think that’s a bit of a fool’s errand, personally.” Here’s a clip:

https://privcap.wistia.com/medias/kvyw7jf5cc

Limited partners of all stripes have in recent years sought to ramp up their co-investment programs, in many cases insisting that GPs grant them direct investment allocations for some or all deals. The desire to co-invest is party based on the lower fees involved, but some market observers worry that too many LPs are under-resourced to properly vet co-investment opportunities, which may lead to adverse selection and perverse GP incentives. View the full interview here, in which Kester also discusses the rise of sovereign wealth funds, the history of ADIA, and the investment advantages that many Canadian institutions have.