Co-Investment

When a private equity firm acquires a company, it sometimes invites select investors to put additional capital into that specific transaction outside the main fund. These investors are co-investors. They gain exposure to one deal directly on their own balance sheet rather than through the fund's diversified portfolio. In exchange for concentrating in a single asset, co-investors are often offered reduced or waived management and performance fees, which is one of the primary practical attractions of the structure.

For family offices, co-investments represent a middle path between fully delegated fund investing and fully independent direct investment. The lead sponsor conducts the primary due diligence, negotiates terms, and manages the asset — the co-investor benefits from that work while still holding a direct position. This makes co-investments particularly relevant for families building out a direct investing capability gradually, since they can learn deal mechanics alongside an experienced sponsor before sourcing their own deals. The topic is covered extensively at co-investments.

Consider a family office that is a limited partner — meaning a passive investor — in a mid-market private equity fund. When that fund acquires a specialty chemicals business, the general partner (the fund manager) offers the family office the chance to invest an additional illustrative amount, say $5 million, directly into that deal at no performance fee. That is a co-investment. A frequent confusion is treating co-investments as risk-free because a reputable sponsor leads them; the family still bears full downside on a single, concentrated position. Tax and legal structures around co-investments are complex, and qualified attorneys and CPAs must be involved in any such transaction.