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5 Unique Strategies for LP Investors to Maximize Portfolio Performance

Joan Charanas
Joan Charanas
June 5th, 2024
Unlock Higher Returns: 5 Unique Strategies for LP Investors to Maximize Portfolio Performance

As an LP investor in the ever-evolving world of investing, you're constantly seeking ways to optimize your investment strategy. While there are many common tips and best practices to follow, today we'll explore five less common yet highly effective LP investor strategies that can help you maximize your returns and amplify your influence as an investor.

Co-investing with Other LPs: Strength in Numbers

As an LP investor, one powerful strategy to consider is co-investing alongside other LPs or participating in a "tribe." By joining forces with like-minded investors, you can pool your resources, share expertise, and potentially gain access to more attractive investment opportunities.

  • Strategic Alliance: Think of co-investing with other LPs as forming a strategic alliance. When you collaborate with a tribe of investors, you're creating a collective bargaining power that can help you negotiate better terms, access larger deals, and diversify your portfolio. According to PitchBook, co-investing can help LPs save on fees and increase their net returns.
  • Risk Mitigation: By leveraging the combined capital and expertise of the group, you can pursue investments that may have been out of reach as an individual investor. Co-investing offers the benefit of risk mitigation. By spreading your investment across multiple deals and partnering with other experienced LPs, you reduce your exposure to any single investment and benefit from the collective wisdom of the group. This diversification strategy can help smooth out the inherent volatility of private equity and venture capital investments.

However, co-investing with other LPs requires careful coordination and alignment of interests. It's crucial to find partners who share your investment philosophy, risk tolerance, and long-term objectives. Establishing clear communication channels, decision-making processes, and governance structures is essential to ensure a smooth and productive collaboration.

  • Due Diligence: When evaluating potential co-investment opportunities, conduct thorough due diligence on both the underlying investment and your co-investing partners. Assess the track record, expertise, and reputation of your fellow LPs, and ensure that there is a shared understanding of the investment thesis, exit strategy, and expected returns.

For more insights on diversification, refer to our blog on The Importance of Diversification in Private Equity.

Negotiating Better Terms: Leveraging Your Capital Commitment

Investor Negotiating Better Terms with Capital Commitment - Handshake and Cash Exchange Over Contract Documents

As an LP investor, you hold a valuable card in your hand: your capital commitment. By strategically deploying your investment dollars, you can negotiate more favorable terms with GPs, ultimately improving your overall returns.

  • Capital as Bargaining Chip: Think of your capital commitment as a bargaining chip at the negotiation table. GPs are eager to secure substantial investments from reputable LPs and may be willing to offer reduced fees, improved liquidity provisions, or other advantageous terms to entice you to invest. McKinsey & Company highlights that negotiating better terms can significantly enhance investment outcomes by aligning the interests of both LPs and GPs, ultimately leading to better financial performance
  • Fee Reductions: Remember, even a seemingly small reduction in fees can have a significant impact on your net returns over the life of the investment. By successfully negotiating better terms, you're effectively increasing your share of the profits and mitigating potential downside risks.

Emerging GPs and First-Time Funds: Untapped Potential

While many LP investors gravitate towards established, brand-name funds, there's a compelling case to be made for investing in emerging GPs and first-time funds. These up-and-coming teams often bring fresh perspectives, niche expertise, and a hunger to prove themselves in the competitive world of investing.

  • Unique Opportunities: Investing in emerging GPs and first-time funds can be compared to discovering a hidden gem. These funds may offer unique investment opportunities, more favorable terms, and the potential for higher returns compared to their more established counterparts. Preqin data shows that emerging managers often outperform their established peers in certain market conditions.
  • Due Diligence: However, investing in emerging GPs and first-time funds also carries inherent risks. These teams may lack the extensive experience and proven performance history of their more seasoned peers. As such, it's crucial to conduct thorough due diligence, evaluating the team's background, investment philosophy, and ability to execute their strategy.

Secondary Markets: Liquidity and Discounts

The secondary market for LP interests offers a valuable tool for investors seeking liquidity or looking to capitalize on discounted opportunities. By buying or selling LP interests on the secondary market, you can effectively reshape your portfolio, reallocate capital, and seize attractive investment prospects.

  • Liquidity Needs: Imagine the secondary market as a vibrant bazaar where LPs can trade their interests in deals. If you need to liquidate your position prior to the end of a fund's life cycle, the secondary market provides an avenue to find a willing buyer. A report from Secondaries Investor notes that the secondary market saw a record $88 billion in transactions in 2020.
  • Discounted Opportunities: Conversely, if you're looking to expand your portfolio or gain exposure to high-quality funds at a discount, the secondary market can be a treasure trove of opportunities. Taking advantage of the secondary market requires a keen understanding of market dynamics, pricing mechanisms, and the underlying quality of the funds being traded.

Engaging with Other LPs: Collaboration and Influence

Engaging with Other LPs: Collaboration and Influence

As an LP investor, you don't have to explore the capital markets alone. By actively engaging with other LPs invested in the same funds or communities, you can share insights, pool resources, and amplify your collective influence.

  • Network of Allies: Think of your fellow LPs as a valuable network of allies and collaborators. By building relationships and fostering open communication, you can gain access to a wealth of knowledge, expertise, and market intelligence. Sharing due diligence findings, discussing fund performance, and comparing notes on manager interactions can help you make more informed investment decisions and identify potential red flags.
  • Influencing Fund Governance: Moreover, by collaborating with other LPs, you can potentially influence fund governance and shape the direction of your investments. Participating in investor advisory committees, voicing concerns, and advocating for collective interests can help ensure that GPs remain accountable and aligned with the needs of their LP base.


As an LP investor, you have a wealth of strategies and techniques at your disposal to maximize your returns and amplify your influence in the investment arena. By co-investing with other LPs, negotiating better terms, exploring emerging managers and first-time funds, utilizing secondary markets, and collaborating with fellow LPs, you can create a more dynamic, resilient, and profitable portfolio.

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