Co-investment vehicles will be the investment model of choice for larger investors in the near future as they shun capital allocators and increasingly move towards direct deals, according to Thomas Barrack.
The Colony Capital chairman and chief executive officer was speaking at the PERE Forum in New York today when he said, “Co-investment clubs will become, for the bigger [investors], the better investment vehicle for a while”.
Barrack told the 200-strong audience that, in a market where transactions didn't move rapidly and where some fund sponsors were able to raise capital quickly, the need for LPs to provide “discretionary capital” to GPs had diminished.
Barrack went on to warn that all LPs “wanted more for less” and – like the wider economy – wanted to be “consumer direct”. As a result, “if you are only a middle man [capital allocator], you are going to be in trouble,” he said.
However, the forum delegates also heard that only some of the largest institutional investors have the size and capabilities to invest directly, or through co-investment vehicles.
Despite 79 percent of the audience voting that they would rather invest with an operator, as opposed to an allocator, a panel of industry professionals questioned: “How are you going to administer that operator relationship. Can you make the myriad of decisions [needed] in real time?”