What Is Co-Investment?

Co-investment has quietly reshaped how sophisticated investors, and family offices in particular, put money into private markets. It sits between the two traditional options, investing through a fund or investing entirely on your own, and captures much of the best of both.

What it is

Co-investment is investing directly in a specific deal alongside a fund manager. When a private equity manager finds a company too large for its fund alone, or simply wants to reward its best investors, it offers them the chance to put additional money straight into that one company, next to the fund's investment.

The co-investor's money goes directly into the deal, not into the fund, and crucially, it usually comes at reduced or zero fees, no full 2 and 20 on that slice of capital.

Why it has become standard

Co-investment used to be a favour. Now it is close to an expectation. The reason is fees and control. Paying 2 and 20 on a whole fund is expensive; co-investing at reduced or no fees dramatically improves the net return on that capital. And it lets the investor choose the specific companies it backs, rather than accepting whatever the fund buys.

For managers, offering co-investment is a way to attract and keep large investors and to do bigger deals. The result is that many family offices now negotiate co-invest rights as a condition of committing to a fund at all.

How families use it

For a family office, co-investment is a natural step on the road from passive fund investor to direct investor. It offers direct-deal economics, lower fees, chosen exposure, and control, with the manager still doing much of the sourcing and diligence. The great majority of large family offices now co-invest.

The trade-off is real, though. Co-investing concentrates risk in a single company rather than spreading it across a fund, and it requires the ability to assess a deal on its merits and the speed to act when the opportunity appears. It rewards families that have built genuine investment capability, and punishes those that chase deals they cannot properly judge. Used well, it is one of the most efficient ways for patient capital to access private markets. Used carelessly, it is concentration risk dressed up as opportunity.