Inside the LP Mindset & Mastering Co-Investments | Joe Basrawy, Partners Capital

In this episode, host Alex Rawlings is joined by Joe Basrawy, Managing Director at Partners Capital, a global multi-asset investment firm serving some of the world's most sophisticated investors — including private equity founders, endowments, and family offices.

Joe offers a rare and in-depth look at the Limited Partner (LP) perspective — covering common pitfalls private equity firms make, what LPs are really looking for, and how to stand out in a crowded market. He also shares a masterclass on co-investments, including how LPs assess alignment, avoid adverse selection, and punch above their weight in deal flow.

This episode is packed with actionable insights for fund managers, deal professionals, operating partners, and anyone looking to better understand what makes a top-performing PE firm in the eyes of institutional investors.

⏱️ Timestamps:

00:00 – Welcome and guest intro: Joe Basrawy, Managing Director, Partners Capital
01:00 – Joe’s background: From investment banking to multi-asset investing
01:25 – What drew Joe to Partners Capital and what’s kept him there
02:21 – Biggest mistakes PE firms and portfolio companies make
03:15 – Raising too much capital: Overstretching and going off-spec
04:13 – Deal-level diversification: What LPs want to see
05:39 – Co-investing 101: Why it's attractive and the risks of adverse selection
06:37 – How LPs like Partners Capital avoid adverse selection in co-investments
07:33 – Being a reliable and speedy co-investment partner
08:31 – Why LPs say “no” to co-investments — alignment, conviction, and deal partners
09:57 – Referencing employees and internal conviction in deals
10:56 – What makes the best private equity firms? Joe’s four pillars
11:25 – #1: Strategy differentiation – A case study in healthcare PE
13:22 – #2: Value creation edge – Organic growth vs market tailwinds
15:18 – #3: Ownership dynamics – How GP stake sales affect firm culture
17:15 – #4: People – Why leadership and succession planning matter
19:05 – Referencing portfolio executives: The most revealing feedback
20:28 – What LPs learn from talking to portfolio CEOs
21:56 – What LPs look for in fund managers – Discipline, detail, and passion
23:52 – Joe’s reading recommendations – Fiction and finance
25:47 – How to connect with Joe
26:17 – Outro from Alex

📘 Recommended Reading by Joe Basrawy:

• The Children Act by Ian McEwan (also a film adaptation with Emma Thompson)
• The Money Kings – History of Jewish-American families who founded Wall Street firms

🔗 Connect with Joe Basrawy:

• LinkedIn
  (search Joe Basrawy)
• Partners Capital Website

Looking to grow your team? Check out our Hiring Guides

 for proven strategies, templates, and best practices to make smarter hires. 

Transcript

00:00
Welcome back to the Raw Selection Private Equity Podcast. Joining us today is Joe Bazraoui, Managed Director at Partners Capital, a global multi-asset investment firm. Today we're going to dive into  the lens from a  LP perspective and also co-investments. So if you're in a private equity firm, investor, managing partner, founder,

00:27
whatever you are, get your pens ready because here is the insights of how you can make your firm more attractive to LPs. if you could give us a brief insight into you, Yeah,  great. Well, I was born in London  and  beyond living in Cambridge University, I basically lived there my entire life.  I think I always knew I wanted a career in investing, but I didn't know where to begin. So I did the classic thing of going to investment banking and let's see what happens.

00:57
And after a couple of years there, I came across Partners Capital and the world of multi-asset class investing. And that was 11 years ago and I'm still here. I'm a managing director in our investment team. I think the things that really drew me to the firm  and have kept me here, frankly, are one,  the quality of our clients.  Many of them are managing partners of leading private equity firms.

01:25
So dealing with  day-to-day questions from people of that caliber has always been extremely motivating. And the other is just the unconstrained investment mandate of our investors who include individuals like the types I've mentioned, but also there's some very prestigious endowments and foundations with kind of perpetual investment horizons. It means you can look at almost anything and there's a level of sophistication that means there's an openness to a lot of

01:54
interesting, weird and wonderful strategies, things like litigation, financing, drug trial funding. So that combination of serving very sophisticated clients, plus  having such a broad investment mandate has kept me in the role. So what's one mistake that you see proud equity firms or their portfolio companies making and what would you suggest to them?

02:21
Yeah, I think, you when I look back at the private equity investments in our portfolio, oh a given deal can be killed for a variety of reasons. There can be a mistaken call when it comes to timing or sector, unforeseen risks in relation to  competitors bringing out something new. And then even the more basic things like  personnel issues or fraud. But if I try and sort of distill it into

02:48
the thematic mistakes as they were. think the first one is  raising too much capital.  It's a truism that pressure to deploy will lead to overpaying for assets. But also what you see quite a lot of is  people overstretching themselves into deals which are not really in their wheelhouse.  So  we're a very active co-investor.

03:15
So we see a lot of the sort deal level diligence that our primary managers, our primary fund managers are doing. uh And you'd be amazed just how common it is when you see a deal and you don't really understand why it's a deal that firm is doing. It just seems a little bit off spec. So I think that's one kind of thematic mistake is sort of raising too much capital and the fact that that will encourage people to go a bit off spec.

03:43
And then the other is  something you'd expect me to say as a multi-asset class investor, but  a lack of diversification. I mean, I'm talking here at the deal level. So  does the deal have enough resiliency in it  in terms of  the obvious things, diversification across suppliers, customers, et cetera, but then also some things that might go under the radar, like are the exit channels, is there diversification across those channels?

04:13
or is the only realistic exit for this company going to be an IPO, in which case that will have potentially dramatic implications for your whole period. And so I'd say those are the main things, raising too much capital and insufficient diversification. So just looking at the diversification side of things, what does good diversification look like?  Beyond like single risk to one client.

04:39
um, key man, risk, et cetera. But when you, when you look at a platform, oh, I like that diversification rather than what you're not looking for. Yeah, I think you, you need to be quite sort of scenario based in your thinking and you need to say, what are the most realistic downsides I can see materializing in the future? today, clearly tariffs is one, um, which is extremely nuanced because you have a huge spread of tariffs for different countries.

05:09
The other will be what happens with Fed and independence.  And really looking at all aspects of the business and saying, if these things materialize to the realistic downside case, what's going to happen to different aspects of the business? And am I protected against a range of scenarios? You referenced about the co-investment. How would you describe to us about co-investing effectively? Yeah, it's  a very important question because

05:39
I think co-investing, your listeners will know what this means, but it's basically investing in a deal on a fee-free basis, whereas typically the funds that the deal is in might be charging its investors something like 2 % management fee and 20 % performance fee. So the price of co-investing is extremely large because just if you took a typical deal and you assumed it was going to do a gross 20 % IRR, after paying those fees, it becomes a net 14%.

06:07
So if you're not paying them by accessing the deals at Co-Emessment,  you've made 6 % off the back. So very attractive. So the key question it gives rise to is, why is someone giving me something for free?  And usually the answer is you're being adversely selected in some way. You're seeing a deal which  others  have passed on. And so how can you, to actually answer your question, how can you combat that impulse  and find a way to

06:37
find good deals within the co-investment world. The first is one, you need a very big primary funds business.  People will show you something for free if it means that you're likely to commit to their primary funds in the future and pay them fees in that capacity.  And the other is you need to be an extremely reliable deal partner.  Getting a deal done is completely different to raising a fund. uh Speed and certainty are paramount.  If you're a

07:06
GP about to close a deal, looking to close a deal, you're not going to phone all of your LPs and offer them  pro rata states in a co-investment. You're going to phone the largest ones and the ones who  pick up the phone most frequently and have the least cumbersome decision-making processes  so that they can give you a yes or a no very quickly. And so one stats we actually track, because we  pride ourselves on

07:33
giving GPs a yes or no within about 48 hours.  And we have dedicated capital so they know when we say yes, we're good for it. And the stat we track is how much capacity do we see in deals  relative to  what we should see based on our pro-rata stake to those GPs primary funds. And the answer is about 11 times.  So we think that  having these things, being a reliable deal partner,

08:02
really allows us to punch above our weight. And that's why we  think we are mitigating adverse selection in our home investment program. So when, when can investment deals come to you? What's the,  one of the kind of main reasons why you guys don't invest  beyond the typical, not your type of deal. You  know, if it's something in your space, you would typically look at and, and review what's some of the things that turn you guys off?

08:31
Yeah, that's a really good question.  the part of your question is actually the main answer is most of the time that is what's happening. It is off spec for one reason or another.  There are then a number of things which  can happen in various deals. One example is  these are  overwhelmingly deals sourced from firms who are already in their funds. That means we know the partners of various firms extremely well. We have our views on it.

08:59
who's the best and who is maybe earlier in their career and is yet to build up the track record to give us confidence to make the conscious decision to back them in the deal. the people running the deal is one consideration. The other quite  obvious one is you do the typical tests for alignment.  Is the fund using its maximum allocation for this deal  across not just the flagship fund, but maybe they have other pools of capital and

09:29
really understanding if there's any evidence of them displaying a lack of conviction in that deal through one of those sources. mean, one very interesting case you see is you have a lot of firms who give employees the opportunity to invest in individual deals. And sometimes if you ask for the data on whether those flows are, and they give them to you, those deals where most people are investing tend to be the better performing deals.  So there's that as well.

09:57
There's a whole range of things. What we try not to do is second guess the manager.  These deals are going to be with funds where we spend months approving the fund, knowing the ins and outs  of what they do.  We don't expect to be able to spot things that they haven't spotted. So it's rare that we'll second guess them. But what we will do is we will bring our network to bear on the deal. So you can imagine given

10:26
our clients are, given the number of funds we're invested in, there will be people who will have knowledge of those sectors, maybe even those companies, certain sort of assumptions that we've been presented with as part of the intelligence reports. And we'll do a lot of referencing just to see if those things stack up. And sometimes they don't. And that's a reason why we turn the notes down. What makes the best private equity firms that you both invest in and also co-invest in?

10:56
Yeah, I think  that is probably the question that makes me most excited to sort of get up in the morning and  go to work. think there's so many different aspects to understanding what makes great. I've actually found it's something we think about very, very deeply indeed.  I'm going to talk about four of them. The first one is on the strategy and whether or not it's differentiated. So really trying to understand what a typical deal looks like for that firm.

11:25
and how it differs to the type of deals everyone else is doing. And that can sound quite vague. So I'll give you an example. If you look at say, US healthcare private equity, healthcare, one of the best performing sectors over a long period of time in private equity. And most firms quite rightly have seen that and developed a very established playbook, which is buy and build in either sort of provider markets, i.e. rolling up.

11:55
clinics or payer markets, so businesses related to  health insurance typically.  And a lot of those firms are very good  and have generated very compelling returns, but that is fundamentally a competitive and mature market.  Instead, we were looking for ways to invest in healthcare that were more differentiated. And there's a manager  we backed recently who they do what they call executive new builds.

12:23
So they will partner with proven executives  to incubate new businesses.  So one  recent example is, oh you'll know about the shortage of healthcare workers in the US,  which may be something that gets worse under the current government.  And so they were focused on creating a healthcare staffing business. So sourcing workers across all different parts of the chain, doctors, nurses, but other sort of.

12:54
manual workers as well. And they build that business up from scratch with, you know, a brand new executive team who they had worked with in many capacities in the past. And that kind of thing, they all create deals which just other healthcare and private sector firms are not going to be able to do. So that's number one, is it a differentiated strategy? Number two is, you know, once they've done the deal,  is there sort of something special about their process?

13:22
that means that  post acquisition is the companies  are more valuable in their hands than it would be in someone else's.  And again, can be quite a vague  concept, but when you look at specific examples,  there are very, very many  stable managers.  One recent example,  we just back the fund to of a US micro cap software manager. So back in 2019,

13:52
We were their first institutional investor. They raised a very small fund, about $200 million.  And so looking at  the new fundraise that we've just committed to, we're very focused on  the value creation in the deals that are in that fund one.  And the number that was quite astonishing was that 70 % of the value created, and bear in mind, this is a fund that's doing very well, investing in your hot sector  at a good time.

14:21
have really benefited from significant tailwinds. But in spite of that,  70 % of the value created has actually been organic growth.  So that's the type of thing we look for where we say,  if those tailwinds aren't there in the future, the only thing you can rely on is that sort of operational  wherewithal to generate the organic growth. And this is a group  who've really done that to an exceptionally high standard.

14:48
Generally why they're able to do that, they're buying sort of businesses who have been run on a bootstrap basis and  have very limited operational maturity. And so the  differences from just implementing sort of industry best practice in software,  it has a very, very big difference very quickly. So that's the second one. Is there something special about that process?  Third one is something I really love thinking about, you know, working in an asset management business myself.

15:18
is the impact of ownership.  think there's a bit of a truism in our industry, which is that a fund does not make a firm.  And there are many, many examples of  firms who had a couple of great funds,  which led to an ownership change. uh Typically, it's like a large investor buying a stake of the GP in a passive capacity. uh And as a result of that ownership change,

15:47
The usual things happen. start to raise more assets, proliferate into different strategies. And that firm goes from having one or two great funds and never really goes on to be a sort of a legend in the industry, which is the type of thing that gets people really excited. Now look, it's not to say that the firm doesn't grow and grow and that those types of transactions can't be extremely lucrative for all involved, right? Not just,

16:17
people at the GP selling a stake, the GP stakes investor might also do  well out of it.  But what it does mean is that  outlier fund performance is unlikely to continue post that kind of event. You almost become  just another product firm.  Now, with all of this said,  it can be you could read into that too much. You could say that all external ownership is bad. And that's definitely not

16:46
case, we have a number of funds who have meaningful passive external ownership, but there can be huge synergies between that business and the strategy of the private equity firm. They can leverage their resources for imports and introductions, that kind of thing, which can give them an edge. Usually that only exists in kind of a sector specialist context, but I just don't want it to be sort of taken out of context.

17:15
External ownership always leads to a negative outcome.  The final uh thing that I think can make a truly great private equity firm is probably the most obvious one, which is the people. And then it builds on a lot of what we're just saying about ownership and kind of succession planning. I think what you really need, you need the people at the top of the firm to be exceptional investors. And the other thing you need them to be is you need them to be sort of

17:44
charismatic leaders,  attracting talent is  extremely difficult. It's very competitive and you need people who build that sense of uh loyalty and  success or potential for future success um in the young talent at their firms.  I think for us, basically putting these four things together, strategy differentiation, difference in their investment process,

18:14
firm ownership, those three things, you can do that analysis, you know, numerically, basically,  as data to back up all of those things. On the last one, though, on people,  there isn't, and there's no substitute for actually spending time with the GPs and doing a huge amount of the type of referencing I mentioned earlier.  So I think that's why

18:39
The job is as interesting as it is. It's that combination of the sort of data-driven approach to piece together your answer to the first three points and then the very quantitative approach to the final. Your assessment  on the full point of people, is that more people in the firm as opposed to people in the portfolio or is that both?  I was talking about people in the firm.

19:05
And that is  what we're focused on because at end of the day, when we're making a fund commitment,  it's largely a blind pool of  deals that we won't know about to the future. But your question is a personal one because we do a huge amount of, of referencing with the CEOs and other individuals and their portfolio companies. And that is  a just in and of itself, a fascinating part of the process. You get to have these amazing conversations.

19:32
But also it's extremely revealing because that's where you get it  from the horse's mouth. And I'm not talking here just about sort of the on-list references. You can find ways to  speak to others  off-list as well.  But even the on-list ones with portfolio company CEOs, they're not people who are versed in kind of the spion of selling a private equity fund, right?  So you end up often with much more frank conversations.

20:01
from people who understand the business obviously better than anyone else. And those are often the most fruitful. you speak to the portfolio executives, what typically do you find out that's good? And then what typically have you found out that's bad? Not giving us any specifics, but generally this is what we like to hear. This is maybe what we hear of firms that are making mistakes. Yeah, I think

20:28
without revealing too many kind of tricks of a trade,  you want to do is you want to imagine there's a really successful investment and you've been given a bunch of reasons from the private equity sponsor as to why it was really successful. But then you're speaking to the person who actually ran the company. You want to ask them the questions that imply that someone else has taken credit for something that they did.  And if you can ask them  those questions, leading questions that get them to almost

20:58
Not contradict, right? Because we're not talking about sort of outright making stuff up, but we're talking about just  the emphasis that was placed on certain decisions  in the process. Particularly around sourcing is the one where understanding auction dynamics and that kind of thing.  speaking to the sponsor, you can get a good sense,  but then you get it  really from the horse's mouth when you speak to the CEO.

21:25
So it's those kind of like leading questions that can uncover a bit of a different interpretation on how the terms are generated. Interesting. just coming back as well to the frame around the people in the firm, just to expand on that a little bit, what specifically are you looking for that makes an investment in a fund more attractive based on what the people, what are you looking for in those people?

21:56
uh It looks, it's tough to put your finger on. There's things you can quantify like, know, GP commitment and that kind of thing, which I guess is kind of separate to what we're talking about here. It is um maybe without sounding too grandiose about it, it's the sort of the archetypes of a great investor.  So number one is discipline.  Do you get the sense from them that they are sort of

22:24
a deal junkie who is just motivated by getting stuff done and kind of moving up the ladder  and getting carry on as many things as possible? Or are they someone who really believes in an investment thesis,  which as I said before, if we're speaking to them, it's probably quite a differentiated thesis. It's probably  something where there aren't  dozens of deals going on all the time. It's where people are being a lot more

22:54
a rifle shot in their approach and closing only a handful of things a year. And so we're looking for that kind of mindset in people. Do they have, do they sort of internalize the strategy in that respect? The other one beyond discipline, I'd say is like how detail oriented they are. You can go too far with this because at the end of the day, private equity is a deals industry. Sourcing is vital.

23:24
rapport with CEOs is vital.  But equally, it would always be a major, major red flag if you're speaking to managing partners of firms, let alone the deal leads, and they want all of the details on the underlying companies. And it kind of gets back to the first point where have they really internalized the strategy? Are they really passionate about what they do? And if they are, then they're going to be all over the town because

23:52
What's,  what do you read, watch,  listen to  that you recommend others to check out Joe? Yeah, I am quite, quite a few things.  uh,  I read quite a lot of fiction actually. Um, I think that,  you know, reading it has actually quite a significant, uh, positive impact on my, my state of mind.  Um, and I think it also, the reading fiction, it expands your mind in a way that, you know, nonfiction.

24:21
doesn't.  And so I read quite a lot of fiction. I'm a big fan of Ian McEwan. I've read everything he's written.  My favorite one for those interested would would probably be The Children Act,  which was a very good film actually a few years ago with Stanley Tichy and Ingrid Zema Thompson.  So would would highly recommend that and you can watch the film afterwards.  And then on the on the nonfiction side,

24:50
I go in and out of things. can see myself  picking things up and then losing interest fairly often. I think most nonfiction is better written as an article than a book. But one I'm really enjoying at the moment  is called Money Kings.  It's a history book, really. It's a history of  the German Jewish families  who emigrated to America in the 19th century.

25:19
went on to build Beaver Brothers and hit the great lines on street.  So that is a pretty fascinating history, just understanding how  things were back then and what it took to build firms of that scale and the various twists and turns along the way.  So I would recommend ready for anyone with any interest in finance. Thank you. I've not heard of any of that, so I shall check it out. If anybody wishes to reach out to you,

25:47
post this podcast, how best do they get in touch with you Joe? So I'm on LinkedIn.  I don't check in that frequently, but you'll find me on there and  drop your message.  The other is we have a contacts page on our website, which is partners-cap.com.  Well, thank you very much for giving us your insights today, Joe, diving into the world of private equity from an LP lens and the co-investments. Thanks for coming on the podcast. Pleasure Alex, I really enjoyed it. Thank you.

26:17
And if you've not already, for all of our listeners, please do subscribe to the podcast. You'll be notified of the podcast that comes out every single week. But till the next time, keep smashing it. And thank you very much for listening.