Shadow Capital Steps Into Spotlight in Private Equity


Institutional investors have been spreading their wings in recent years, experimenting with new ways to put money to work in private equity (PE) beyond the conventional constraints of being passive partners in PE funds. As we discuss in Bain & Company’s Global Private Equity Report 2015, the emergence of so-called “shadow capital” is generating a lot of buzz in the PE community as industry participants ponder the potentially large part it will play in the evolving relationship between general partners (GPs) and limited partners (LPs) in the future.

Shadow capital’s allure lies in the myriad ways it serves the long-term interests of LPs and GPs alike. For LPs, investing outside of the conventional PE fund structure improves their prospects for boosting returns at lower costs. Investing shadow capital also gives LPs greater control over where they put their money to work. By investing actively alongside GPs, LPs are able to develop their own internal capabilities, gain experience in direct investment disciplines and acquire valuable knowledge about industries to which they may not otherwise have access. With all of these positives to recommend it, it is little surprise that LPs expect shadow capital will play an increasingly prominent role in their future investment plans (see figure)…

Shadow Capital Steps Into Spotlight in Private Equity

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