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Bailey McCann, Opalesque New York:

Co-investments have been a hot topic for pension funds in recent years, as they try to move away from high fees and improve transparency. But now, family offices are more readily getting into the mix and establishing in-house deal teams, according to the delegates at the recent Opalesque Investor Roundtable.

Family offices are going into co-investments for many of the same reasons as pensions did before them - fees and transparency.

"When Julian Robertson was running Tiger Management, an investor could justify the 2 and 20 structure because you are earning over 30% a year. If you are earning only 5 or 6% a year with an alternative product, 2 and 20 feels awfully expensive," says Carol Pepper, CEO and Founder, Pepper International.

Even with that, Michael Swackhamer, Principal, Generation Equity Capital, adds investors can get burned without having a seasoned internal team in place. Both direct and co-investing requires a dynamism and level of involvement that exceeds simply allocating to a fund.

"What I find that tends to go undiscussed is the deal-structuring element. For instance, owning a preferred security, that sits senior in the capital structure with some preference on liquidation and that comes with a participating feature and an accruing dividend, is dramatically different than being a common shareholder in a business – it’s an entirely different investment altogether. And it’s hard to appreciate the value in th......................

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