What Is an Equity Co-Investment?

The term refers to two parties investing in the same company, but when it involves a limited partner in a fund, the term has a special meaning. If the fund's limited partner has co-investment rights, he can invest directly in companies supported by private equity funds. In this way, the partner owns two separate shares in the company, one is obtained indirectly through the fund, and the other is obtained through direct investment. Some private equity firms provide co-investment rights to encourage institutional investors to invest in funds.

Co-investment

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The term refers to two parties investing in the same company, but when it involves a limited partner in a fund, the term has a special meaning. If the fund's limited partner has co-investment rights, he can invest directly in companies supported by private equity funds. In this way, the partner owns two separate shares in the company, one is obtained indirectly through the fund, and the other is obtained through direct investment. Some private equity firms provide co-investment rights to encourage institutional investors to invest in funds.

Co-investment benefits

The benefit of co-investment is that an institution can achieve a higher return than investing all the private equity allocations in the fund. The institution does not have to pay management fees, nor does it have to hand over 20% of the return due to the fund's collateral equity. But for a successful co-investment, the agency needs to understand the market well enough to assess the quality of co-investment opportunities.