Private equity funds increasingly invite private investors and family offices to co-invest in their deals. It is a way to access quality transactions at lower cost, but it requires knowing what to ask and what to negotiate.
When a private equity fund buys a company, it does not always put up all the capital required. Because of concentration limits, strategy or a wish to share risk, it invites other investors into the same deal, alongside it. These investors — family offices, entrepreneurs, institutional investors — are co-investors.
Why co-investment appeals to private investors
- Lower costs. Co-investments often carry reduced or no management and performance fees compared with a fund.
- Deal-by-deal choice. The investor decides which company to back, instead of committing capital to a blind pool.
- Access to professional deals. The fund found the company, negotiated, carried out due diligence and will manage the holding.
- Learning. For family offices wanting to build direct investment capability, investing alongside a fund is a school.
The risks that are not in the presentation
- Adverse selection. A fund offers co-investment in its best deals — or in those where it needs to complete the financing. It is worth understanding why.
- Little time to decide. Decision windows are short. An investor without a process of their own tends to rely too heavily on the fund’s work.
- Little control. The fund leads; the co-investor follows. Decisions on management, financing and exit belong to the fund.
- Concentration. A co-investment is a bet on a single company. In a fund, the risk is diversified.
What to ask before going in
- Why is the fund offering co-investment in this deal?
- What share of the fund’s own capital is going in, and on exactly what terms?
- Do co-investors come in at the same price and in the same share class as the fund?
- What fees and costs apply to the co-investor?
- What information will be provided, and how often?
- Will the co-investor exit alongside the fund, on the same terms?
- What is the fund’s track record in similar deals?
The rights to negotiate
Even without control, a co-investor should secure a minimum: entry on the same economic terms as the fund; the right to join any sale (tag-along); periodic reporting with defined content; and, in larger deals, some veto over decisions that materially change the investment, such as share issues that would dilute their position.
Building a co-investment portfolio
For a private investor or family office, the most important rule is diversification: several deals, sectors, lead funds and vintage years. A single co-investment is a concentrated risk; a portfolio of six to ten, built over a few years, comes close to the profile of a fund at lower cost.
GestInvest provides access to selected co-investments and club deals, analyses opportunities from the investor’s side and negotiates entry terms. Read more about private investment access and our investments, or about choosing co-investors in club deals.
Frequently asked questions
What is the minimum amount to co-invest?
It varies widely. In mid-sized deals, co-investment tickets range from a few hundred thousand to several million euros.
Do I need to be an investor in the fund to co-invest?
Not always, but funds tend to offer co-investment to their own investors first. An adviser with relationships across several funds widens access.
How long is the capital invested for?
Usually the same as the fund: between three and seven years, until the company is sold.
