Value of Direct Deals Under the Microscope


March 26, 2015

There’s been of talk about institutional investors increasing their direct and co-investment activity, but new academic research, studying returns between 1999 and 2011 finds that returns for direct venture capital deals, even for sophisticated institutional investors, are underperforming the LP’s own benchmarks, according to an article in Institutional Investor. More recent performance data may prove to have different results but for now that is the case.


The stories of windfall returns and homeruns on direct deals spark institutional investors’ interest in direct deals. However, the experts cited in the article suggest that only a handful of limited partners actually have had the resources available to do direct investments.


Nevertheless they continue to be keen on this kind of activity due to the appeal of cutting out PE fund management fees, greater transparency into industries and companies, and a desire to deploy more capital into equities. The table here shows recent investment figures the sovereign wealth funds that are most active in private equity and venture capital, comparing capital invested directly with capital placed in blind PE pools. (Image source: II)

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