what is an equity co investment 
an equity co investment is a minority investment in a company made by investors alongside a private equity fund manager or venture capital vc firm equity co investment enables other investors to participate in potentially highly profitable investments without paying the usual high fees charged by a private equity fund opportunities for equity co investment are typically restricted to large institutional investors who have a relationship with the private equity fund manager and are often not available to smaller or retail investors understanding equity co investmentsas noted above a minority investment made by an investor into a company or venture is called an equity co investment many of the investors that make these investments are institutional investors such as pension funds and insurance companies these deals may also attract certain high net worth individuals hnwis 1 the majority of the money poured into an equity co investment known simply as a co investment typically comes from a private equity or vc firm in a typical equity co investment fund the investor pays a fund sponsor or general partner gp with whom the investor has a well defined private equity partnership the partnership agreement outlines how the gp allocates capital and diversifies assets co investments avoid typical limited partnerships lps and general funds by investing directly in a company 2because the co investor has a minority interest in the fund the sponsoring firm the private equity or venture capital firm retains control over how it is managed including the holdings and rebalancing as such the co investor cannot make any decisions about the fund equity co investment accounted for significant growth in private equity fundraising since the 2007 2008 financial crisis compared to traditional fund investments although interest in co investing remains high fundraising is limited this is largely due to economic conditions interest rates inflation and recessionary fears and geopolitical concerns 34source s p global a 5 year sector view of global limited partner co investments with private equity according to a study by preqin 80 of lps reported better performance from equity co investments compared to traditional fund structures 2advantages and disadvantages of equity co investmentsequity co investing in private equity deals has certain advantages but co investors who participate in these deals should read the fine print before agreeing to them there are several key benefits to co investments for both the investor and the private equity or venture capital firm that spearheads the fund among them including the most important aspect of co investments is their complicated nature these are risky ventures which require a great deal of transparency and disclosure since co investors take a minority stake in a co investment they should be sure that they are well apprised of how the fund is run and executed they should also research the fund s management and the team s responsibilities another key drawback of these deals can be the absence of fee transparency private equity firms don t offer much detail about the fees they charge lps there may be hidden costs in cases like co investing where they purportedly offer no fee services to invest in large deals for example they may charge monitoring fees which can amount to several million dollars this may not be evident at first glance from lps there is also the possibility that pe firms may receive payments from companies in their portfolio to promote the deals such deals are also risky for co investors because they have no say in selecting or structuring the deal the success or failure of the deals rests on the acumen of the private equity professionals in charge in some cases that may not always be optimal as the deal may sink exposure to new marketsaccess to capital and greater flexibilitysharing the riskbetter fee structurecomplicatedlack of fee transparencyco investors have no say in the dealexample of an equity co investmenthere s a hypothetical example to show how equity co investments work suppose a 500 million fund could select three enterprises valued at 300 million the partnership agreement might limit fund investments to 100 million which means the firms would be leveraged by 200 million for each company if a new opportunity merged with an enterprise value of 350 the gp would need to seek funding outside its fund structure because it can only invest 100 million directly the gp could borrow 100 million for financing and offer co investment opportunities to existing limited partnerships or outside parties 