Co-Investment
Co-investment is an LP’s direct participation in a specific deal alongside a GP’s fund, often on reduced fees and carry.
Allocator relevance: A key lever to reduce fee drag, increase targeted exposure, and manage portfolio construction—while increasing execution and concentration demands.
Expanded Definition
Co-investments allow LPs to deploy additional capital into select opportunities without increasing fund commitments. They can enhance net returns through improved economics, but they shift responsibility to the allocator for deal-level underwriting, governance readiness, and speed.
Access is relationship-dependent and often favors LPs with proven execution, rapid decision-making, and the ability to handle operational diligence quickly.
How It Works in Practice
GPs offer co-invest allocations opportunistically—often with short timelines. LPs must review the deal, confirm fit within risk limits, and approve quickly through their IC/decision chain. Documentation and reporting may differ from the main fund.
Decision Authority and Governance
Co-invest programs require clarity on who can approve deals and how conflicts are handled (e.g., allocation fairness between fund and co-invest). Governance should include concentration limits and underwriting standards consistent with broader portfolio discipline.
Common Misconceptions
- Co-invest always has better risk-adjusted returns.
- Reduced fees/carry guarantee better outcomes.
- Co-invest risk is automatically lower than fund risk.
Key Takeaways
- Better economics can come with higher execution burden.
- Speed, governance, and underwriting capacity are gating factors.
- Concentration risk must be managed deliberately.