Soaring interest in co-investments may come back to haunt the industry if the cycle turns, warned Andreas Beroutsos in a recent interview with sister title PEI.
Beroutsos, an executive with Canadian financial institution Caisse de dépôt et placement du Québec (CDPQ), said that some firms were only looking at the economic benefits of the arrangement and ignoring the potential for things to go wrong.
“We will only know how well these have fared when the water recedes. We are already high in the current cycle, and people are taking risks they were not taking three to five years ago,” said Beroutsos, who attributes the trend to investor overconfidence.
“Some people doing co-investments are doing so without the relevant teams. They often see that a big private equity firm has already underwritten the deal, so they say ‘it must be safe’.”
Beroutsos said there is a temptation to accelerate direct investing based on previous success, but LPs should “have the wisdom and clarity of mind to not go too far.”
CDPQ plans to grow its own alternatives portfolio from $35 billion to $50 million over the next three and half years. Of that, some $8 billion a year will be used for direct and fund investments across private equity and infrastructure.
CDPQ is also undergoing a period of growth, said Beroutsos, who joined the group 15 months ago when it was staffed with 50 people but plans to expand to 130 people over the next four years. The firm is also planning office openings in Mumbai and Singapore next year to crack the Asia market.