Co-investments represent an attractive opportunity for investors to become more involved with private markets alongside experienced traditional private equity and real estate managers and institutional investors. Co-investments generally provide individual investors with more transparency, control, and the potential for higher returns as compared with public markets.
Since the financial crisis, co-investing has proven to be a key driver of growth in private equity fundraising. According to a study by Preqin of fund managers and investors, 80% of limited partners have seen their co-investments outperforming private equity funds, with 46% seeing their co-investments outperform by a margin of more than 5%.1
Co-investments typically take the form of a minority stake (less than 50% ownership) directly in a private company or large individual real estate investment or portfolio of real estate investments, alongside a co-mingled private equity-structured fund.
A distinct advantage of co-investments is the ability to commit capital with full visibility to the individual investment one is investing in, as opposed to traditional private equity-structured funds, which include a portfolio of companies and real estate properties that are often not fully invested until a later time. Additionally, in many circumstances co-investments can also offer investors the opportunity to pay lower fees than a private equity-structured fund.
Because the size of equity being sought for co-investments is typically smaller (minority stakes), they are viewed as a more accessible approach for non-institutional investors and individuals. However, it is important to engage with a firm that provides access to these types of investments and understands how they work.
As stated above, because co-investors are investing in an opportunity alongside a larger fund vehicle, which is seeking the diversification benefits of lessening the equity exposure to the investment opportunity within the Fund itself, they are typically charged a reduced fee and receive ownership privileges equal to the percentage of their investment.
To learn more about co-investing, please contact [email protected].
