Co-Investment

It allows these investors to participate in a specific transaction rather than investing solely through a diversified fund.

In private equity, co-investment is typically offered by a management firm to some of its investors when the size of a transaction exceeds the main fund’s investment capacity or when the firm wishes to involve its partners in a particular opportunity.

Co-investment is now widely used by institutional investors and is gradually gaining traction among private investors through dedicated solutions.

How does a co-investment work?

When a private equity fund identifies a company in which it wishes to invest, it may decide to open up part of the transaction to co-investors.

These investors then make a direct investment in the target company, alongside the main fund.

The management company generally remains responsible for:

• Selecting the opportunity;
• Due due diligence ;
• Negotiating the transaction;
• Investment monitoring;
• Preparing for the outing.

Co-investors thus benefit from the manager's expertise while participating directly in the transaction.

Why do funds offer co-investments?

Co-investment serves several purposes.

Financing large-scale projects

Some acquisitions require amounts greater than what a fund is willing to commit on its own. In such cases, bringing in co-investors helps to secure the necessary funding.

Strengthen relationships with investors

Co-investment opportunities often provide investment management firms with a way to more closely involve their investors in their most significant transactions.

Maintain portfolio discipline

Co-investment allows the main fund to comply with its diversification rules by limiting exposure to a single company.

What are the benefits of co-investment?

Direct exposure to a company

Unlike an investment in a diversified fund, co-investment allows investors to participate in a specific company and a specific transaction.

Access to institutional opportunities

Co-investments have traditionally been reserved for large institutional investors such as pension funds, insurers, and sovereign wealth funds.

Greater transparency regarding the investment

Investors generally have access to detailed information about the company, its growth strategy, and the objectives set by the shareholders.

What are the risks of co-investment?

More limited diversification

A co-investment typically involves a single company. The risk is therefore more concentrated than in a fund that invests in dozens of companies.

Risk of capital loss

As with any private equity investment, the value of the company may go up or down.

Limited liquidity

Co-investments are typically held for several years and do not have an organized secondary market that allows for immediate resale.

Co-investment and Private Equity Funds: What Are the Differences?

The two approaches are complementary but are based on different rationales.

Private Equity Funds

Investors gain access to a diversified portfolio of companies selected by a management team.

Co-Investment

The investor invests directly in a specific transaction and focuses their exposure on a single company or a limited number of companies.

Institutional investors often combine these two approaches in order to benefit from both the diversification offered by funds and the targeted exposure provided by co-investment.

Co-investment in Modern Private Equity

Co-investment has become a cornerstone of institutional private equity.

Major global investors are now allocating an increasing portion of their private equity portfolios to this sector. This trend can be attributed in particular to the growing professionalism of private markets and the rise in large-scale transactions requiring significant amounts of capital.

As private equity becomes increasingly accessible, certain platforms now allow private investors to access strategies that include co-investments alongside institutional funds.

History of Co-Investment

1980s–1990s: Expansion into the institutional investor market

The first co-investment programs have emerged primarily among pension funds and professional investors.

The 2000s: The Rise of Major Transactions

The increasing size of private equity transactions is driving the use of co-investment to supplement financing.

Today: A key tool in the private market

Co-investment is now a widespread practice among the world’s leading private equity firms.

FAQ

What is the difference between a private equity fund and a co-investment?

A fund invests in multiple companies to build a diversified portfolio. A co-investment allows for direct participation in a specific company or transaction.

Is co-investment limited to institutional investors?

Historically, yes, but certain solutions now allow private investors to indirectly access strategies that include co-investments.

Does co-investment involve more risk than a fund?

Risk is generally more concentrated because the investment focuses on a limited number of companies. As a result, diversification is lower than in a traditional fund.

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Disclaimer: Investing involves the risk of capital loss. Past performance is not indicative of future results. The information presented in this article is intended solely for educational and informational purposes. It does not constitute investment advice or a recommendation to buy or sell any financial instrument.

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