It’s like a hedge fund except the fees are lower, your funds are tied up for longer, and the firm is even more secretive than usual about its bets. That, and your money only goes to one single investment.
These single-bet funds, called co-investments, are gaining prominence on Wall Street, reports The Wall Street Journal’s Rob Copeland. They’re also increasingly popular amongst shareholder activists.
Co-investments are usually pretty covert — investors reportedly have to sign confidentiality agreements before they even get to hear the investment idea, and then they have to decide whether or not to join within a matter of days.
One high-profile example, though, was Bill Ackman’s Target venture, which completely flopped.
And that’s the risk with these types of “hedge” funds: they’re not hedging at all. The whole point of hedge funds is to pool money and invest it across a number of strategies in order to hedge risk. That way, if you get something wrong, your investors have some downside protection.
Of course, this isn’t the first instance of hedge funds that don’t hedge. “Long only” funds have existed for years. But co-investments are taking on that risk and requiring investors to make open-ended (sometimes years-long) commitments.
Some big name managers, like Corvex, Jana, Magnetar, and Trian are already jumping on the co-investment bandwagon, reports Copeland. Let’s see if this trend continues to take hold.