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Co-investments are most often associated with private equity (PE) and allow a direct investment alongside a PE fund, but outside the main fund structure. These investments are typically intended for a specific company and are offered to select investors, usually current limited partners (LPs) who want to increase exposure to high-conviction opportunities—but they can also include new investors.
Co-investments are becoming increasingly popular among investors seeking transparency to a specific investment, and potentially as a return enhancer. They supplement traditional PE fund commitments but require active due diligence and careful monitoring to avoid overconcentration, hidden fees, or conflicts of interest.
For Investors/LPs
Targeted Deal Exposure: Ability to participate in specific investments where an investor has high conviction.
Transparency & Control: Visibility into the specific investment and the option as to whether to invest.
Lower Fee Exposure: Often offered without management or performance fees—though transaction or monitoring charges may still apply.
For Fund Managers/GPs
Larger Capacity for Deals: Enables managers to make larger investments in a specific company than otherwise would be possible in the primary fund due to concentration or diversification requirements.
Investor Relationship Building: Offering co-investment opportunities can strengthen long-term investor relationships.
Implementation Insight: Co-investments can emerge as go-to vehicles when other exit routes are challenged (e.g., M&A, IPOs). Their continued use across market cycles has validated their role, and they’re now commonly employed for routine recapitalizations and portfolio management.
Potential Conflicts of Interest: GPs may favor certain LPs or deals based on relationships or strategic reasons.
Fee Transparency: Even without traditional fees, lesser-known costs like transaction fees may still apply.
Deal Quality & Diligence Burden: Quality may vary by deal, and LPs must conduct rigorous due diligence.
Concentration Risk: Participating in sizable deals may lead to overexposure relative to the LP’s broader portfolio.
Strategy Drift: GPs might shift focus toward deals that benefit co-investors, rather than staying aligned with the original mandate.
Implementation Insight: Advisors should carefully assess whether a co-investment complements a client’s overall portfolio and risk profile. Building in safeguards—such as limits on deal size or sector exposure—can help manage concentration and ensure proper diversification.
| Myth | Fact |
| Co-investments are always better because they avoid fees. | While co-investments often waive management and performance fees, investors may still face transaction, legal, or monitoring costs. |
| Only large institutions can access co-investments. | Access has expanded. While big institutions still dominate, more feeder funds and platforms are creating pathways for smaller investors. |
| Co-investments reduce risk compared to traditional PE funds. | They can actually increase risk if not carefully managed, due to concentration in a single manager, strategy or deal. |
| All co-investment opportunities are equal. | Quality varies. Some co-investments are in the fund’s top deals, but others may be offered because they are harder to place. Rigorous due diligence is essential. |
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