Co-investment means investing directly in a specific company alongside a private equity fund, rather than only investing in the fund's overall blind pool. It is typically offered by a fund manager (GP) to some of its existing fund investors (LPs) on a deal-by-deal basis, and it is usually on more favourable fee terms than the main fund.

How it actually works

When a private equity fund identifies a deal too large to fund entirely from its own committed capital, or wants to bring in specific investors for strategic reasons, the GP may offer selected LPs the opportunity to invest additional capital directly into that single deal, on top of their existing fund commitment. The investor ends up with two things: their share of the fund's overall portfolio, and a direct, larger stake in that one specific company.

Why co-investment terms are usually better

Because the GP has already done the work of sourcing and structuring the deal for the main fund, co-investment capital is often charged reduced or even no additional management fee and carried interest. This is one of the few structural ways to access private equity-style returns with a lower fee drag than the standard "2 and 20" model.

The genuine advantages

  • Lower fees — reduced or waived management fee and carry on the co-invested amount, in many though not all cases.
  • More visibility — unlike a blind-pool fund commitment, you can evaluate the specific company before committing additional capital to it.
  • Increased exposure to deals you already believe in — a way to lean further into a specific opportunity the fund manager has already vetted.

The trade-offs

  • Concentration risk — you are increasing your exposure to a single company, not diversifying, which cuts both ways.
  • Time pressure — co-investment opportunities are often offered on short timelines, giving limited time for independent due diligence on the specific deal.
  • Access is not guaranteed — co-investment rights depend on the fund's terms and the GP's discretion; not every LP gets offered every deal.
  • Same illiquidity as the underlying fund — a co-investment is exited on the same timeline as the portfolio company itself, with no separate secondary market.

Who typically gets access

Co-investment is generally only available to investors who are already committed to the main fund as an LP, which in practice means institutional investors and certified high-net-worth, sophisticated or professional investors, given the underlying fund commitment itself is restricted to those categories under UK financial promotion rules.

Before saying yes to a co-investment

  • Ask for the same level of information on the specific company that you would expect for a standalone investment: financials, competitive position, and the exit thesis.
  • Confirm the actual fee and carry terms for the co-investment specifically — do not assume they mirror the main fund.
  • Check how much time you genuinely have to evaluate the opportunity before the offer expires.
  • Consider how a single additional concentrated position affects your overall portfolio risk, not just this one deal in isolation.

See also Private Equity Investment Funds Explained for how the underlying fund structure works, and the Private Equity Investment Due Diligence Checklist before committing to any specific deal.

Private equity investments can lose value. This is not financial advice; consider speaking to an FCA-authorised adviser before investing.