Co-Investment Explained

Co-investment has gone from a quiet perk to a defining feature of modern private markets investing and it’s reshaping how fund managers and limited partners work together. We dig into what co-investment actually is: an LP investing directly into a specific deal alongside the fund, on top of their core fund commitment. That single move changes the economics, the diligence process, and the expectations on both sides of the table. 

From the LP perspective, the draw is straightforward and powerful: co-investments often come with reduced or even zero fees and carry, plus more control and transparency because you can evaluate a specific asset instead of relying on a blind pool. As deal sizes rise and LPs get more sophisticated, direct deal participation becomes a strategic tool for building targeted exposure and improving net returns in private equity and beyond. 

From the manager perspective, co-investment helps get larger transactions done without loading the fund with outsized concentration risk. It also strengthens investor relationships by offering something genuinely valuable: access. But there’s a catch. Co-investment only works when the process is operationally sharp, fast timelines, clear communication, and clean logistics for bringing multiple parties into one deal without confusion or delays. 

If you’re thinking about using co-investment to deepen LP relationships rather than strain them, this conversation lays out the incentives and the execution realities. Subscribe for more on private markets strategy, share the episode with a colleague, and leave a review if it helped, what’s your best or worst co-investment experience?

Transcript

Why Co-Inment Matters Now

SPEAKER_00 0:00

Welcome back to Private Markets Uncapped. Today we are getting into something that has quietly become one of the most important tools in a fund manager's relationship with their investors. And the data suggests it is only growing.

Defining Co-Investment Simply

SPEAKER_00 0:17

Jason, what do you know about coinvestment?

SPEAKER_01 0:20

Enough to be dangerous, but I would love for you to actually lay it out properly. My rough understanding is that it is when an LP gets to invest directly into a specific deal alongside the fund itself. Is that the gist of it?

SPEAKER_00 0:33

That is exactly the gist. In a typical fund, an investor commits capital and the manager deploys it across the whole portfolio at their discretion. With co-investment, the manager offers certain LPs the chance to put additional capital directly into a particular deal on top of their fund commitment, and it has become a real cornerstone of how managers attract and retain their best investors.

The LP Upside On Fees

SPEAKER_00 1:03

So why has it taken off the way it has? What is in it for both sides? For the LP, there are a few things. Co-investments typically come with reduced or no fees and carry, so the economics are more favorable than investing through the fund alone. They also give the investor more control and transparency because they can evaluate a specific deal rather than committing blindly to a blind pool. As deal sizes have grown and investors have gotten more sophisticated, the appetite for that kind of direct participation has increased substantially.

The Manager Upside On Scale

SPEAKER_00 1:44

For the manager, co-investment is a way to get larger deals done without taking on outsized concentration risk in the fund. If a great opportunity is bigger than the fund can comfortably absorb, offering co-investment lets the manager pursue it while bringing trusted LPs along. It also deepens relationships with the investors you most want to keep, because you are giving them access to something genuinely valuable.

SPEAKER_01 2:14

It is almost like a loyalty dynamic. The best LPs get first look at the best opportunities.

SPEAKER_00 2:20

That is precisely how it functions, and it is part of why investors increasingly expect co-investment access from managers they back.

Execution Challenges And Next Steps

SPEAKER_00 2:30

The challenge is operational. Running a co-investment process well requires moving quickly. Communicating clearly and managing the logistics of bringing multiple parties into a single deal on a tight timeline. Done poorly, it creates friction and frustration at exactly the wrong moment.

SPEAKER_01 2:52

So the opportunity is real, but it lives or dies on execution.

SPEAKER_00 2:56

As so much in this business does. And if you want to think through how to offer co-investment in a way that strengthens your LP relationships, rather than straining them, that is something Fastport is built to support. Book a demo at fastport.co and the link is in the show notes. Really useful one today.

SPEAKER_01 3:17

See you in the next episode.

SPEAKER_00 3:18

See you then.

SPEAKER_01 3:22

Thanks for listening. See you next time.