- Barings co-invests with managers in lower-mid market
- Co-invested in deal that helped GP early in fundraise
- Barings uses data to help GPs get an edge
Mina Pacheco Nazemi is a member of Barings Alternative Investments funds and co-investments team, responsible for overseeing all co-investments. She spoke with Buyouts about taking a more active approach to co-investments, rather than just asking for more from GPs.
When you approach co-investments, are you looking to be more involved in deals or are you more focused on putting more money to work with managers you trust?
Where we are on that continuum is actively working with smaller managers in the lower-middle market, and we like that for a whole host of reasons.
Among LPs, I feel like everyone has their hand out all the time, and everyone is always asking these GPs for co-investments. But one of the things that we try to do is to be helpful with our managers.
[Some large LPs] are trying to satisfy so many mouths and they’re just trying to get money out the door, and they’re like, “Great! Good deal, here you go, send me the documents.” That is not our approach and that is how you can get yourself into trouble. Yes, you have to trust your GPs — at the end of the day the GP is leading and the GP knows more about the asset — but our job is to make sure we do our work to confirm what the GP thinks the value is and the opportunity is.
Do you see more supply than demand in the market?
Because LPs are all clamoring for co-investments, it means a lot of those investors need to write bigger and bigger checks. If you look at our competitors in the market, they are all raising very large commingled co-investment funds, or they’re doing it on behalf of a lot of clients.
What that means is they have a lot of mouths to feed and they want to write a $40 million, $50 million, or $75 [million] or $100 million co-investment check. Everyone is clamoring, and I feel like there is more demand for larger co-investment checks, but there are very few managers who really need a $50 million, or $75 million, or $100 million check.
Can you give me an example of what do you differently to be a better partner?
We just closed a [small] deal that I led, [with] a manager that is currently raising their second fund. They’ve only had one close, and they wanted to be sure that they had enough diversification in their portfolio and not put all of their first close [commitments] into the deal. We really supported them and helped them with the transaction, getting it done and allowing them to have enough room to do other deals that they saw before they got to their second close.
With this deal, I also knew their number one competitor and was able to help them get some market information about how much that competitor was acquired for, the margins, and how well they’d been doing over the last five years. That makes us more valuable than the average co-investor who just says “send me your memo, we’ll look through your model.” Obviously, we will never be as expert as the GP, but if we have access to information, or know-how, we want to share it with our GPs.
How do you gather the kind of information that can add value to a deal?
We have exposure to everything from public equities to our lending business, and we have research analysts as well. We’re actually using a lot of the data that is at our fingertips to help us with our own underwriting and we also share that with our GPs. We can tell a GP, “hey, I think you’re overpaying” or “I think you’re overlevering this business” or “hey, we’ve looked at other competitors, and when we’ve looked at other competitors, this is what happened in a stress case scenario.”
I think a lot of large global asset managers in theory have access to similar information, but how interconnected are these teams? We are not as siloed as maybe some larger organizations.
Do you prefer committing first and then co-investing or vice versa?
We’ve done it both ways. It’s a good way for us to get to know a manager, but we may commit to a fund first. It’s largely a function of timing, so there are no hard-and-fast rules for us.