The Top 20 Co-investing LPs

These days, GPs raising new funds know that they can pretty safely assume at least half of their LPs (by number; likely more by capital commitments) will want access to co-investments. Both Coller Capital and Probitas Partners have released survey data in recent months, pointing to LPs’ ever-growing appetite for co-investments. To highlight the biggest players in the co-investment world, we present the inaugural Privcap Top 20 Co-investors League Table. These big leaguers include the largest LPs with known co-investment activities. They are the stewards of more than $5.5T of total assets. These players have more than $150B in existing and potential co-investment portfolios, according to Privcap calculations. Not surprisingly, we note a large presence of sovereign wealth funds, taking six of the top 10 spots. We estimate that more than 70 percent of co-investment capital resides in Asia and the Middle East. The U.S. is represented primarily by the California and New York public pension systems. We also uncover a couple of relative newcomers to the private equity asset class, including the Hong Kong Monetary Authority and South Africa’s GEPF. As well as looking at the players who dominate the sector, we take a look at the potential up-and-comers in the realm of private equity co-investing: the largest LPs who are investing in PE but not yet in co-investments, and notable LPs who have announced that they are expanding their co-investment activities.

The Top 20, In Depth

Largest LP Co-/Direct Investment Programs
(Top 20 with PE Co-invest, by Total AUM)

1. Abu Dhabi Investment Authority (ADIA)

• Investor Type: Sovereign wealth fund
• HQ: UAE
• Total Assets: $627B
• Estimated PE Allocation: 8 percent
• Estimated Co-investment Allocation: 25 percent of PE allocation
• Commentary: Our estimate of co-investment allocation is based on ADIA’s use of external managers for 75 percent of its assets in 2012. ADIA typically co-invests alongside GP relationships, including as a strategic investor alongside Apollo following the 2007 purchase of 10 percent of Apollo’s management company. The SWF continues to grow its internal PE investment team, including the recruitment of professionals with co-investment experience. The hiring of Pascal Heberling as senior portfolio manager of principal investments in February 2014 is an example; Heberling was previously a partner at U.K.-based buyout shop Cinven Limited where he had worked for 12 years. ADIA as yet to fill the CIO position following Jim Kester’s departure in mid-2013.

2. China Investment Corporation (CIC)

• Investor Type: Sovereign wealth fund
• HQ: China
• Total Assets: $575B
• Estimated PE Allocation: 16 percent
• Estimated Co-investment Allocation: 43 percent of PE allocation
• Commentary: Our estimate of co-investment allocation is based on CIC’s use of external managers to manage 57 percent of its assets. Established in 2007 to manage a portion of China’s foreign exchange reserves, CIC’s AUM grew from $200B when founded to $575B currently. Its internal investment staff is 443 globally, according to its 2012 annual report; the number of dedicated PE/direct investment team members was not disclosed. With the planned retirement of Gao Xiqing, who has served as president of CIC since its founding in 2007, his successor Li Keping was recruited as CIO in 2011 and recently appointed vice chairman and president in February 2014. Gao and Li previously worked together at the Chinese state pension fund—the National Social Security Fund (“NSSF”). Notable investments include a separate account with J.C. Flowers to co-invest in distressed financial institutions during the financial crisis, as well as direct investments in South Africa-based Shanduka Group in 2011 and the U.K.’s Thames Water Utilities in 2012.

3. State Administration of Foreign Exchange (SAFE)

• Investor Type: Sovereign wealth fund
• HQ: China
• Total Assets: $569B
• Estimated PE Allocation: 5 percent
• Estimated Co-investment Allocation: 10 percent of PE allocation
• Commentary: SAFE holds approximately 10 percent of its total assets in direct investments outside of China. The key regulator of China’s foreign reserves began investing in PE during the financial crisis. Notably, it made a $2.5B fund commitment to the 2008-vintage TPG buyout fund that invested in Washington Mutual; SAFE also reportedly co-invested a large (undisclosed) sum alongside TPG into the collapsed U.S. lender. SAFE’s CIO Zhu Changhong reportedly left the organization in January 2014; he had joined SAFE in 2010 having previously served as a hedge fund manager at PIMCO for ten years. The reason for Zhu’s departure has not been disclosed, and SAFE has not announced his replacement.

4. Kuwait Investment Authority (KIA)

• Investor Type: Sovereign wealth fund
• HQ: Kuwait
• Total Assets: $386B
• Estimated PE Allocation: 14 percent (estimate)
• Estimated Co-investment Allocation: 2 percent
• Commentary: Since its founding in 1953, KIA has been responsible for managing Kuwait’s oil revenues. KIA’s PE allocation is not disclosed, but we estimate it to be roughly half of KIA’s 28 percent exposure to alternatives. The fund is a recent entrant into co-investments, and the PE allocation estimate is based on a $1B co-investment program managed through its PE advisor StepStone Global, according to market sources.

5. Stichting Pensioenfonds ABP (ABP) / APG Asset Management (APG)

• Investor Type: Public pension fund
• HQ: Netherlands
• Total Assets: $373B
• Estimated PE Allocation: 5 percent
• Estimated Co-investment Allocation: 25-30 percent of PE allocation
• Commentary: ABP, the Dutch public pension fund for government officials and education employees, historically has been managed internally. In 1999, ABP and Dutch healthcare/social worker pension PGGM (now PFZW) formed the predecessor to AlpInvest to increase their PE exposures including co-investment. In 2007, a new pension law mandated Dutch pensions to hand over their asset management to independent firms, thus the creation of APG Asset Management. Since 2008, APG has managed ABP and has added five other pension plans to its client list. In 2012, APG began building own in-house PE team, including direct investment talent, and launched investment activities during 2013. It has opened a New York office with investment professionals focused on fund and direct investments.

6. National Pension Service of Korea (NPS)

• Investor Type: Public pension fund
• HQ: South Korea
• Total Assets: $368B
• Estimated PE Allocation: 3 percent
• Estimated Co-investment Allocation: 4 percent of PE allocation
• Commentary: NPS was created in 1988 to manage South Korea’s equivalent of a social security fund. In its early years, NPS invested in more conservative asset classes. In 2002-2003, NPS first began investing in VC/PE, and in 2006, it launched its overseas investment team. NPS has made efforts to increase its direct/co-investing activities in recent years, including through a co-investment partnership with Standard Life Investments Private Equity, and also by committing KRW400B to a foreign M&A fund along with other Korean LPs. The pension fund also recently co-invested in Colonial Pipeline Company alongside U.S. mega-buyout firm KKR. NPS is targeting to reach 11.3 percent allocation to alternatives in 2014, including increases to its PE allocation. NPS has expanded its global footprint, opening its New York and London offices in 2011 and 2012, respectively.

7. Hong Kong Monetary Authority (HKMA)

• Investor Type: Sovereign wealth fund
• HQ: Hong Kong
• Total Assets: $327B
• Estimated PE Allocation: 6 percent of long-term growth portfolio (LTGP), or 2 percent of total assets
• Estimated Co-investment Allocation: Opportunistic
• Commentary: HKMA’s PE investments through funds and co-investments began in 2009 and are managed in the LTGP, which is capped at one-third of total assets. The purpose of the LTGP is to preserve the purchasing power of the fund over time. The other two-thirds of HKMA assets are housed in the backing portfolio, which is invested in highly liquid U.S. dollar-denominated securities. Though newer to PE, HKMA has aggressively pursued the build-out of its exposure to this asset class as a long-term inflation-protection measure. HKMA uses external fund managers to manage all of its equity portfolios and other specialized assets, including PE.

8. GIC (formerly Government of Singapore Investment Corporation)

• Investor Type: Sovereign wealth fund
• HQ: Singapore
• Estimated Total Assets: $285B
• PE Allocation: up to 15 percent (including infrastructure)
• Estimated Co-investment Allocation: Undisclosed
• Commentary: GIC was incorporated in 1981 and, its website states, has the mission of generating “a reasonable risk-adjusted rate above global inflation over a 20-year investment horizon,” and thus preserve Singapore’s foreign reserves. In contrast to its more aggressive cousin Temasek, GIC’s direct investment program is focused on taking minority equity positions as well as providing mezzanine financing in buyouts. GIC’s co-investment allocation is not disclosed.

9. California Public Employees’ Retirement System (CalPERS)

• Investor Type: Public pension fund
• HQ: United States
• Total Assets: $282B
• Estimated PE Allocation: 11 percent
• Estimated Co-investment Allocation: Up to 50 percent of PE allocation
• Commentary: The largest public pension plan in the U.S., CalPERS has invested in private equity since 1990. Historically, CalPERS has relied on investment advisors and funds-of-funds to access and manage its PE portfolio. After severing ties with long-time PE advisor Pacific Corporate Group in 2010, it has taken on a more active role. In addition to rebalancing and restructuring its PE portfolio via secondary sales throughout 2011 and 2012, CalPERS has also expanded the scope of its PE investing to include more co-investment alongside GPs and direct investing. (See Up-and-Coming LPs section on page 23).

10. Canada Pension Plan Investment Board (CPPIB)

• Investor Type: Public pension fund
• HQ: Canada
• Total Assets: $189B
• Estimated PE Allocation: 19 percent
• Estimated Co-investment Allocation: 13 percent of PE allocation
•Commentary: CPPIB can invest $100M to $500M per deal for co-investments, and $200M to $1B per deal for direct investments. There are two divisions that manage CPPIB’s PE allocations: 1) Fund/Secondaries/Co-invest and 2) Principal Investments. The former division focuses on fund and direct investments involving CPPIB’s GP relationships and is staffed with 32 professionals. The latter division—with 68 investment professionals —operates as an independent principal investment arm for natural resources, direct private equity, and private debt investments. ClearChannel, Avaya, Dollar General, TXU, Neiman Marcus Group, Asurion, NXP, and Nielsen are all examples of direct PE investments made through CPPIB’s Principal Investments division. The co-investments alongside GPs are small and fewer, including Brickman, Coway, Service Repair Solutions, and Alibaba Group (the exception to the smaller size generalization).

11. California State Teachers’ Retirement System (CalSTRS)

• Investor Type: Public pension fund
• HQ: United States
• Total Assets: $180.8B
• Estimated PE Allocation: 13 percent
• Estimated Co-investment Allocation: 6 percent of PE allocation
• Commentary: CalSTRS has a 13 percent allocation to private equity, with actual allocation at 11.8 percent as of Feb. 28, 2014. The pension’s portfolio includes more than 50 co-investments, representing about 6 percent of its $21B of PE assets under management. The public pension accesses co-investments through its GP relationships, and its co-investment policy requires a positive recommendation by both CalSTRS internal staff and a third-party advisor/fiduciary. CalSTRS’ historical co-investment exposure has included commitments to co-investment sidecars managed by Bain Capital, CVC Capital, and other notable GPs. In 2012, CalSTRS announced it intended to pursue more separate accounts and co-investments.

12. Stichting Pensioenfonds Zorg en Welzijn (PFZW; formerly PGGM)

• Investor Type: Public pension fund
• HQ: Netherlands
• Total Assets: $177B
• Estimated PE Allocation: 6 percent
• Estimated Co-investment Allocation: 25-30 percent of PE allocation
• Commentary: The Dutch healthcare/social worker pension, which is the country’s second largest, has a similar history to ABP/APG described previously. Its predecessor was formed in 1969. In 2008, the same regulatory forces that caused the structural changes with ABP/APG resulted in the separation of duties between PFZW—which is a non-profit foundation—and PGGM —which manages PFZW’s investment portfolio. The PE portfolio was historically managed by AlpInvest, which has invested PFZW’s capital in PE funds, secondaries, and co-investments. The AlpInvest contract will continue to 2015. However, PGGM has been building its own in-house PE and infrastructure teams.

13. Employees Provident Fund (EPF)

• Investor Type: Public pension fund
• HQ: Malaysia
• Total Assets: $176B
• Estimated PE Allocation: 2 percent
• Estimated Co-investment Allocation: 20 percent of PE allocation
• Commentary: Malaysia’s EPF manages a compulsory savings and retirement plan for the nation’s private sector workers. EPF has publicly stated that plans to increase its PE allocation, though no new targets have been set. The fund has a particular interest in ASEAN and China opportunities, with local deals comprising about 20 percent of its PE portfolio. For example, in 2013, EPF co-invested alongside Johor Corporation and CVC Capital Partners to privatize QSR Brands Bhd and KFC Holdings Malaysia Bhd.

14. Temasek

• Investor Type: Sovereign wealth fund
• HQ: Singapore
• Total Assets: $173B
• Estimated PE Allocation: 27 percent (exposure to unlisted assets)
• Estimated Co-investment Allocation: 90 percent of PE allocation
• Commentary: In contrast to its larger cousin GIC, Temasek focuses a larger proportion of its PE portfolio on lead or control investor stakes, directly in its portfolio companies rather than through fund managers. Our co-investment allocation estimate is based on Temasek having less than 10 percent of its overall portfolio invested in third party-managed funds. As expected, Temasek has a much higher risk-return profile than Singapore’s GIC and Central Provident Fund, with investments made since March 2003 generating 20 percent annualized returns over the last 10 years. In comparison, GIC’s 10-year annualized nominal returns—albeit on its entire portfolio and not just recent investments—were 8.8 percent; CPF’s target returns are in the low single digits.

15. Qatar Investment Authority (QIA)

• Investor Type: Sovereign wealth fund
• HQ: Qatar
• Total Assets: $170B
• Estimated PE Allocation: unknown
• Estimated Co-investment Allocation: Undisclosed
• Commentary: Founded in 2005, QIA’s mission is to strengthen Qatar’s economy by diversifying into asset classes outside of natural resources. It has since grown to more than 110 investment professionals. Although public data on QIA’s PE and co-investment activities are difficult to find, QIA is known as being an active investor in PE funds and co-investments. Its PE allocation and co-investment allocation are not publicly disclosed.

16. New York State Common Retirement Fund (NYSCRF)

• Investor type: Public pension fund
• HQ: United States
• Total Assets: $150B
• Estimated PE Allocation: 9 percent
• Estimated Co-investment Allocation: 5 percent of PE allocation
• Commentary: NYSCRF states that it opportunistically invests in co-investments, which we interpret to mean zero to 10 percent of its PE allocation. Its co-investment portfolio includes a $250M separate account with emerging managers-focused private equity firm Farol Asset Management to make in-state investments. The NY state pension experienced some interruption to its PE investment program in the late 2000’s, but it appears to have recommenced its strategy.

17. New York City Retirement Systems (NYCRS)

• Investor type: Public pension fund
• HQ: United States
• Total Assets: $144B
• Estimated PE Allocation: 6 percent
• Estimated Co-investment Allocation: Varies by underlying plan
• Commentary: NYC has five separate public pension plans, each with its own investment board, policies, portfolios, and advisors. The five plans include the New York City Employees’ Retirement System (NYCERS); the Teachers’ Retirement System of the City of New York (TRS), the New York City Police Pension Fund Subchapter 2 (POLICE); New York City Fire Department Pension Fund Subchapter Two (FIRE); and the New York City Board of Education Retirement System (BERS). The NYC Comptroller serves as the custodian and investment advisor to the boards of these five pension funds. Most of the PE exposure is through the three larger plans—TRS, NYCERS, and POLICE, with NYCERS having close to 8 percent of its assets invested in PE. For the most part, the co-investment exposure for all five plans is through sidecar vehicles or co-investment funds-of-funds.

18. Florida Retirement System Pension Plan (FRS)

• Investor type: Public pension fund
• HQ: United States
• Total Assets: $140B
• Estimated PE Allocation: 6 percent
• Estimated Co-investment Allocation: 8 percent of PE allocation
• Commentary: The FRS is managed by the State Board of Administration (SBA) of Florida. Its historical co-investments have been through commitments to Lexington’s co-investment vehicles. The market value of these commitments totaled about $650M as of mid-2013. The prior two Lexington co-investment vehicles were essentially two-LP separate accounts, with SBA and New York State Teachers’ Retirement System (NYSTRS) providing the committed capital. In addition, SBA committed $500M to Lexington’s third co-investment vehicle in 2013, which closed on $1.6B.

19. Ontario Teachers’ Pension Plan (OTPP)

• Investor type: Public pension fund
• HQ: Canada
• Total Assets: $130.8B
• Estimated PE Allocation: 9.4 percent
• Estimated Co-investment Allocation: 50 percent of PE allocation
• Commentary: OTPP’s private equity portfolio is managed by Teachers’ Private Capital, which was launched in 1991. Since then, TPC has grown to a team of 40+ investment professionals and invested in more than 300 direct and fund investments. As of Dec. 31, 2012, the pension had CA$12B allocated to private equity. TPC has a greater focus on direct and co-investments than most LPs its size, with approximately half of its historical PE investments allocated to direct or co-investments.

20. Government Employees Pension Fund (GEPF)

• Investor type: Public pension fund
• HQ: South Africa
• Total Assets: $125B
• Estimated PE Allocation: 5 percent
• Estimated Co-investment Allocation: 80 percent of PE allocation
• Commentary: The largest pension plan in Africa, GEPF manages retirement assets on behalf of all public employees in South Africa. GEPF only recently added unlisted investments (including PE) to its investment strategy in 2012. For this bucket, the South African pension fund has a 15 percent aggregate allocation to PE, property, and developmental investments, of which we estimate one-third is focused on PE. GEPF is focused on direct investments, co-investments, and fund investments, with 80 percent of its PE allocation managed through directs and co-investments.

Runners up:

21. Teacher Retirement System of Texas (TRS)

• Investor type: Public pension fund
• HQ: United States
• Total Assets: $124B
• Estimated PE Allocation: 11 percent
• Estimated Co-investment Allocation: 20 percent of PE allocation (target)

22. ATP Livslang Pension (ATP)

• Investor type: Public pension fund
• HQ: Denmark
• Total Assets: $110B
• Estimated PE Allocation: 9 percent
• Estimated Co-investment Allocation: 5 percent of PE allocation

Methodology: Ranking based on total assets, as provided in Tower Watson Top 300 Pensions Report 2013, the Sovereign Wealth Fund Institute website, or LP website.
Only LPs with known PE co-investment exposure are included on this league table. Sources: LP websites, Tower Watson, Sovereign Wealth Fund Institute, news reports.