Co-Investments and Club Deals

What Is a Co-Investment?

A co-investment is a chance to invest directly in a single company or asset alongside a general partner — the fund manager who sourced and is leading the deal. Instead of gaining exposure to that company through a pooled fund, the family writes a separate check that goes directly into the same transaction. The family becomes, in effect, a co-owner of that specific asset rather than a fractional holder of a diversified portfolio.

Co-investments sit in an interesting middle ground between direct investing — where the family finds and runs its own deals — and traditional private equity fund investing. The sponsor does the heavy lifting of sourcing, structuring, and managing the deal. The family provides additional equity capital for that specific opportunity.

How Co-Invests Are Structured

A sponsor will sometimes need more equity capital than its fund can deploy into a single company, or it may want to bring in trusted partners to strengthen a deal. The sponsor then offers a co-investment allocation — a defined dollar amount — to select limited partners or other relationships. Families typically receive this offer alongside a term sheet or after a letter of intent is signed, meaning the clock is already running.

The family usually invests through a special purpose vehicle — a dedicated legal entity created solely to hold that one investment. The SPV is the formal mechanism that connects the family's capital to the deal. It keeps the co-investment clean and separate from other holdings on the family's balance sheet.

Fee Economics

Carried interest is the share of profits a GP earns as performance compensation — commonly called "carry." A basis point is one one-hundredth of a percentage point, and management fees are often quoted in basis points. Co-investments are frequently offered with reduced or zero management fees and reduced or zero carry, because the family is providing capital that helps the GP complete a deal the fund cannot fully finance on its own. This fee structure is sometimes described as "no fee, no carry" — though the actual terms vary deal by deal and families must review every agreement carefully with qualified legal counsel.

The economic appeal is real, but families commonly treat reduced fees as a reason to move fast and ask fewer questions. The fee savings only matter if the underlying investment performs — and a poor deal with no fees is still a poor deal.

Club Deals Among Families

A club deal is a transaction where a small group of investors — often family offices — pool capital to acquire or finance an asset together, without a single dominant fund manager leading the way. Think of a group of three or four families jointly purchasing a commercial real estate portfolio or lending to a middle-market company through private credit. Each family participates as a principal, not as a passive fund investor.

Club deals can give families access to transaction sizes that no single family could comfortably absorb alone, while preserving a degree of control and transparency that traditional funds do not offer. A hypothetical example: a founder who sold her logistics company, a multi-generational agricultural family, and two other family offices collectively acquiring a regional industrial real estate portfolio — each taking a defined equity slice through a shared LLC.

Governance in Club Deals

When families govern a deal together, they need clear rules before capital is committed. An operating agreement should spell out decision rights, how future capital calls work, what happens if one family wants to exit early, and who has day-to-day management authority. These conversations are far easier to have before a deal closes than after a disagreement surfaces mid-hold.

Sponsor Relationships and What GPs Expect

Co-investment opportunities flow through relationships. A sponsor — typically a private equity or venture capital firm — tends to offer allocations first to the limited partners it already works with, and then to family offices and institutions it wants to deepen ties with. A family that has never invested in a GP's fund is less likely to receive co-investment access than one that has been a committed LP for several years.

GPs value certain qualities in co-investment partners. Families that can make fast decisions, deploy meaningful capital, bring operating expertise to a deal, and maintain confidentiality throughout the process are considered strong partners. GPs generally do not want a co-investor who will request unusual governance rights, slow down a closing, or share deal information outside appropriate channels.

Families building a family office from the ground up — working through the steps of establishing the office — often discover that co-investment access becomes available only after the office has established a track record as a reliable LP. Relationships take time to build, and sponsors have long memories in both directions.

Speed Requirements

The most distinctive feature of co-investment — and the one most likely to create problems — is the timeline. A GP sourcing a deal has often already done months of work before extending a co-investment offer. By the time the family receives the materials, the sponsor may expect a decision in days, not weeks.

This compression is not a negotiating tactic; it is a structural reality. Deals have signing deadlines, competing bidders, and financing conditions. A family that cannot say yes or no quickly will simply stop receiving offers.

Families commonly address this by establishing an investment committee with a defined fast-track process for co-investments, pre-authorizing a standing capital allocation for opportunistic deals, and identifying in advance which advisors — legal, financial, operational — can be mobilized quickly. Having a general counsel or outside counsel already familiar with deal documentation makes a meaningful difference when a three-day clock is running.

Diligence Shortcuts and Where Families Get Into Trouble

Due diligence is the systematic process of investigating a deal before committing capital — reviewing financials, legal documents, management quality, competitive position, and operational risks. In a standard private equity fund, the GP conducts this process over an extended period with a dedicated team. In a co-investment, the family must either replicate that work independently or rely almost entirely on the sponsor's analysis.

That reliance is where things go wrong. A sponsor's interests are not identical to a co-investor's interests. The GP has a diversified fund; the family has a concentrated single-asset position. The GP has carried interest in the whole fund's performance; the family only participates in this one deal. Deals that a GP might accept with modest return expectations inside a portfolio of twenty companies carry a very different risk profile when they represent a large slice of a family's liquid capital.

Families that treat a sponsor's enthusiasm as a substitute for independent analysis are effectively outsourcing their judgment to a party with different incentives. Speed is a reason to prepare in advance — not a reason to skip diligence entirely.

Common shortcuts that create problems include: accepting a quality of earnings report prepared for the GP without commissioning an independent review; skipping operational diligence on management teams; not fully understanding the distribution waterfall — the contractual order in which profits are paid to different investors — inside the SPV; and failing to model what happens if the J-curve effect (the early-period cash drag common in private investments) extends longer than expected.

Families who invest successfully in co-investments over time typically build a repeatable due diligence framework rather than approaching each deal fresh. They track vintage year, compare returns using consistent measures like internal rate of return and multiple on invested capital, and review results against appropriate benchmarks through disciplined performance measurement.

Co-investments and club deals can be a meaningful part of how a family office deploys capital — offering access, economics, and engagement that pooled funds cannot replicate. They also concentrate risk, demand speed, and reward preparation. Families who approach them with both enthusiasm and discipline tend to find the most durable results. All decisions in this area carry significant legal and tax implications, and families should work with qualified attorneys and CPAs before committing capital to any structure.