Key Takeaways

60% of respondents globally now offer a co-investment program; in North America, 73% of firms offer co-investments.

  • Research reveals that co-investments are a popular strategy for firms, particularly those in North America.
  • However, the process must be managed carefully. GPs are conscious of the risk of misalignment, particularly where LPs are making the minimum investments required for access to a fund in order to secure significant exposure to direct deals; the effect can be to undermine the traditional relationship between GP and LP.

Co-investments can work well for GPs and LPs alike. “For the former, co-investment provides greater certainty of funding and helps mitigate the risk of funds becoming overly concentrated, particularly during periods when liquidity is at a premium,” says Markus Bolsinger, co-head of Dechert's PE practice. “For the latter, co-investments offer greater control over their exposure; the capability to deploy additional capital into the most attractive opportunities; the ability to make tactical allocations to attractive sectors or geographies; and the potential to secure more advantageous terms, possibly reducing their cost of capital.”

LPs are continuing to increase their commitments to co-investments, according to research from Pitchbook. The data chimes with advisors’ experiences on the ground.

We’ve seen a steady increase in the numbers of co-investment deals over the past three years,” she says. “We see many more GPs looking to some of their LPs to invest in specific transactions.” Sabina Comis, global co-managing partner
We’ve seen a steady increase in the numbers of co-investment deals over the past three years,” she says. “We see many more GPs looking to some of their LPs to invest in specific transactions.” Sabina Comis, global co-managing partner
We’ve seen a steady increase in the numbers of co-investment deals over the past three years,” she says. “We see many more GPs looking to some of their LPs to invest in specific transactions.” Sabina Comis, global co-managing partner

As for LPs, Comis warns: “In terms of risk profile, although co-investments technically offer greater control over the exposure and often more advantageous terms, they may also deprive the investor from the diversification protection offered by the manager providing averaged return.”

That said, LPs are becoming more sophisticated, says Bolsinger, carrying out more of their own due diligence work to assess risk, and doing so at a pace that does not hold up the GP.

LPs are now able to work within the transaction timeline, which was often a problem in the early days of co-investments, because you didn’t know whether the LP would be there when you needed it.” Markus Bolsinger, co-head of Dechert's PE practice
LPs are now able to work within the transaction timeline, which was often a problem in the early days of co-investments, because you didn’t know whether the LP would be there when you needed it.” Markus Bolsinger, co-head of Dechert's PE practice
LPs are now able to work within the transaction timeline, which was often a problem in the early days of co-investments, because you didn’t know whether the LP would be there when you needed it.” Markus Bolsinger, co-head of Dechert's PE practice

Indeed, from the LPs’ perspective, co-investment brings certain due diligence advantages. Each allocation to a new PE fund requires its own diligence project, often necessitating a significant commitment of resources. But in a co-investment, the LP can deploy additional capital with a manager they have already vetted.

Footnotes

The preceding article is an excerpt from the 2025 Global Private Equity Outlook report, an annual publication that uses qualitative and quantitative findings to look at current PE industry trends and views on where the market is heading in 2025.