Co-investment
Factual definition
A co-investment is an investment alongside a sponsor’s fund in a specific deal, often by a limited partner and often on reduced-fee terms.
A fund commitment and a separate co-investment
Hypothetical: a limited partner has committed US$50m to a fund and separately funds a US$10m co-investment in one portfolio company. The commitment is not proof that US$50m has been drawn, so these figures do not establish US$60m of paid-in capital.
Fees and carry depend on the terms. Ownership and primary contributions may appear in company records.
Add the fund’s exposure to the direct check
Hypothetical continuation. The LP with a US$50m commitment owns a 10% economic share of a US$500m fund.
Assume the fund invests US$40m in a company and allocates this investment proportionately, while the LP separately invests US$10m alongside it. Before fees or carry, the LP’s look-through cost exposure to that company is US$4m through the fund plus US$10m directly, or US$14m.
If both investments lose 50% of their value on the same basis, the LP’s combined loss is US$7m. This is a concentration illustration, not a forecast.
Review the direct vehicle’s fees, expenses, voting rights, follow-on obligations and exit provisions alongside the fund terms before treating the extra allocation as simply cheaper access.
ILPA’s co-investment guidance addresses allocation, expenses and conflicts. Understand why the sponsor is offering the tranche and how the opportunity was allocated.
Reduced fees may be attractive, but they do not remove company risk or the need to examine the transaction independently.
Where Co-investment fits
Explore this term in the glossary cloud →