Co-Investment

When a private equity or private credit fund manager, known as a general partner, identifies a deal too large to fund from one vehicle alone, or simply wants to reward its best relationships, it may offer select investors the chance to invest directly alongside the fund. That side investment is called a co-investment. The investor gets exposure to one specific company or asset rather than a diversified pool.

For families with substantial capital, co-investments are often attractive because the economics improve meaningfully: management fees and carried interest are frequently reduced or eliminated entirely on the co-invest portion. Consider a hypothetical family office that commits to a private equity fund and, six months later, receives an offer to co-invest directly in one of that fund's portfolio companies at no additional carry. The potential return improvement over a full-fee structure can be significant.

The most common confusion is treating co-investments as automatically superior. Because they are single-asset positions, concentration risk is higher than in a diversified fund. Due diligence timelines are also compressed; managers typically need a decision within days, which can disadvantage investors who lack internal analytical resources. Families working through this area may find context in the private markets overview.