Private Equity Co-investing
Investment characteristics and considerations
- Co-investments are becoming an increasingly important component of private equity programs as investors are seeking higher returns from private investments to enhance their broader portfolio returns.
- There can be diverse and significant benefits of co-investment from both a General Partner and Limited Partner perspective.
- By their nature, co-investments have inherent risks requiring unique skills and relationships to be properly executed.
- We believe carefully implemented co-investment portfolios can supplement well-diversified private equity portfolios, increasing the potential to achieve attractive risk-adjusted returns and overall portfolio return enhancement.
Investors are increasingly looking to co-investments as an important component of their private equity programs
Over the past few years, interest in co-investments has expanded significantly as investors of all types seek higher returns from private investments to enhance their broader portfolio returns. While co-investing has been a part of the private equity industry for some time, it is new for many investors and the landscape continues to evolve. At the start of 2020, nearly 60%1 of Limited Partners (LPs) were planning to invest in co-investment opportunities, up from an estimated 24%2 of LPs that were actively co-investing back in 2012. In fact, Cambridge Associates estimates global private equity co-investment capital to be ~$60bn or ~20% of the overall Private Equity (PE) market3. Co-investments can be a source of high returns at reduced costs, but the inherent risks and implementation considerations should be carefully weighed in order for investors to realize the full benefit of an allocation to co-investments within their private equity portfolios.