Kevin Wong
Principal, Private Equity
Alberta Investment Management Corporation (AIMCo)
Lance Pridham has been selected as a candidate for the NextGen to Watch List, recognizing young professionals (32 and under) in the pension and investment industry who demonstrate strong commitment and exceptional performance. Lance shared insights into the evolving landscape of co-investment strategies, highlighting key trends shaping the industry. He provided valuable advice for professionals on effectively presenting ideas to senior management and offered guidance for young talent looking to build careers in the pension sector. Additionally, he reflected on the major disruptions likely to impact the investment industry over the next decade.
Lance Pridham: At AIMCo I am a member of the Private Equity team where I lead our direct and co-investment activities within the Business Services vertical. I’m responsible for managing and monitoring our existing Business Services portfolio companies in addition to sourcing, evaluating and executing new investments in the sector.
Lance Pridham: Over the past decade, both the demand for and supply of private equity co-investment has grown significantly. As LPs were growing their allocations to private equity, co-investment was seen as a way to quickly grow that exposure in a fee-efficient and targeted manner. At the same time, GPs saw the benefits of expanding the pool of capital available to them and how co-investment can further cultivate the relationships GPs have with LPs. This has led the co-investment process on any given deal to be more institutionalized and often resulting in a short, competitive, syndicated process that occurs following the sponsor’s signing of a transaction.
In recent years as the private equity fundraising environment has become more challenged GPs have leaned on co-investment to generate demand for their fundraise or help stretch the remaining capital in existing funds delaying the need for the next fundraise. Certain sponsors who historically did not offer co-investment to LPs have started to be open to the idea more recently. In addition, GPs have increased their use of offering co-investment opportunities to prospective LPs as a way to kickstart a relationship.
Another trend I have seen in recent years as the share of private equity deals with co-investment has increased relates to fees charged by the private equity sponsor to the underlying portfolio company. While co-investments are typically “no fee, no carry”, certain sponsors will charge fees to the portfolio company at entry, exit and/or throughout the investment which impact the returns to co-investors and distort the effective returns to the sponsor relative to co-investors.
Lance Pridham: When presenting ideas to senior management it is important to have conviction and confidence in what you are presenting. To have that you must know your audience and put yourself in their shoes to prepare for questions and issues which they may raise. It is also a good idea to take a step back from your idea to understand the strategic aspect of what you are proposing including how it will affect your clients, your broader organization, and other key stakeholders involved.
Institutional CONNECT: What career advice would you offer to young professionals who wish to join the pension industry or start building their own career pathways?
Lance Pridham: For young professionals early in their career it is important to learn as much as you can as quickly as you can. The best way to do that is to ask questions to those around you – do not be afraid to ask “why?”. Asking why things happen, why certain decisions are made, why something is done the way it is, and other questions along those lines will help you understand important context that can’t be easily discovered otherwise.
Young professionals should also understand they often have unique skills from growing up in a tech-native generation and they should not be afraid to use those skills to help move their organization forward in ways that others may not have ever considered.
Lance Pridham:It’s difficult today to answer any question regarding disruption without acknowledging generative AI’s advances in recent years as well as the pace of development expected in the coming years. Within private equity it will undoubtedly have an impact on the entire investment process all the way from sourcing deals through to analyzing, executing and monitoring investments.
Another source of disruption within private markets and private equity specifically is the ongoing trend toward democratization and making opportunities to invest in private asset classes available to retail investors. Several large private equity managers have launched or are in the process of launching retail products and I expect this channel to be a large source of AUM growth within private assets over the next 10-20 years. The pace of disruption will depend on the regulatory environment, the continued education of retail investors who are less familiar with private markets compared to public markets, and the ability for investing platforms to provide retail investors with some level of liquidity on a semi-regular basis.