Mario Giannini – View from the Top of Private Equity at Hamilton Lane (Capital Allocators, EP.262)

Co-Investment

Co-investment strategies have become a staple in modern investment portfolios, offering investors a broader range of choices beyond traditional funds. Mario Gianninni explains that co-investment programs are now integral to portfolio construction, akin to how mutual funds evolved from singular options like the Magellan fund to a plethora of choices 1. He emphasizes the importance of selecting the right general partners and deals, noting that the alignment between a deal and a general partner's expertise is crucial.

There's a double layer. When you're doing co-investments of both the deal and the general partner.

--- Mario Gianninni

This approach requires a dedicated team and a clear philosophy to navigate the complexities of direct deals and partnerships 1.

   

GP-LP Dynamics

The dynamics between general partners (GPs) and limited partners (LPs) are fraught with tension and misunderstanding. Mario Gianninni highlights that GPs often fail to understand LPs, viewing them merely as sources of capital 2. He criticizes advisory boards as ineffective, serving more as a platform for LPs to feel important rather than a source of valuable insights.

Advisory boards are a place where LP's want to feel important and feel really good, and GPs want to make them feel important and really good.

--- Mario Gianninni

Despite these challenges, turnover within firms is seen as necessary, with Gianninni arguing that it can be beneficial if it leads to bringing in better talent 3.

   

Continuation Funds

Continuation funds offer a controversial yet intriguing option for private equity firms to retain control over successful companies. Mario Gianninni challenges the consensus that these funds are detrimental, arguing that they allow GPs to maintain control over valuable deals rather than selling to another GP 4. He notes that the returns from GP-to-GP deals are comparable to traditional exits, suggesting no inherent disadvantage.

The continuation fund is actually in a very interesting way to stay in control of that deal because presumably you know what you're doing.

--- Mario Gianninni

However, he warns against the potential for greed-driven decisions, emphasizing the need for careful economic considerations in these deals 4.