The Complete Guide to Private Equity Co-Investing in 2026

What is Co-Investing?

imagine getting access to the same deals that pension funds and endowments see, without paying the typical 2% management fees. that's the promise of co-investing — and it's transforming how sophisticated investors access private equity opportunities.

co-investing means investing directly alongside institutional fund managers in specific deals. instead of committing capital to a blind pool fund, you see each opportunity individually and decide whether to participate. you invest alongside the fund manager in the same deal, on the same terms, but typically without paying management fees on your co-investment.

here's a simple example: a search fund entrepreneur finds a profitable HVAC company to acquire for $5M. they raise $2M from their fund investors and offer a co-investment opportunity for the remaining $1M of equity. co-investors get the same equity terms as the fund but don't pay ongoing management fees.

the key insight: co-investing gives you institutional deal access without institutional minimums or fee structures. you're essentially "renting" the sourcing, due diligence, and management capabilities of professional investors.

Co-Investing Models and Structures

co-investing takes many forms, from traditional institutional arrangements to newer platform-based models. understanding the different structures helps you choose the right approach for your situation.

Traditional Institutional Co-Investing

large institutional investors (pension funds, endowments, family offices) often co-invest alongside their fund commitments. when a fund manager finds an attractive deal, they offer existing LPs the opportunity to invest additional capital directly in that specific company.

this model works well for institutions with large allocations to private equity and dedicated investment teams. the GP gets additional capital for larger deals, and LPs get fee-efficient exposure to attractive opportunities.

Search Fund Co-Investing

search fund co-investing has democratized access to institutional-quality SMB deals. when a searcher finds their acquisition target, they typically need more capital than their original search fund investors provided. this creates co-investment opportunities for additional accredited investors.

Platform-Based Co-Investing

newer platforms aggregate co-investment opportunities from multiple fund managers and make them accessible to smaller investors. these platforms handle the sourcing, due diligence coordination, and administrative complexity.

platform models vary, but most charge modest fees (0.5-1.5% annually) plus carried interest (10-20%) while providing access to deal flow that would otherwise require direct relationships with fund managers.

Direct Co-Investing

sophisticated individual investors or family offices sometimes establish direct relationships with fund managers for co-investment opportunities. this requires significant capital commitments and investment expertise but offers the most favorable terms.

Benefits of Co-Investing

co-investing has gained popularity because it addresses many of the traditional complaints about private equity investing. here's why sophisticated investors are allocating more capital to co-investments:

Lower Fee Structure

the most obvious benefit: co-investments typically carry no management fees. if you're paying 2% annually on fund commitments, eliminating that fee on 50% of your capital through co-investments can meaningfully improve net returns.

Deal Selection and Transparency

unlike blind pool funds, co-investing lets you see exactly what you're buying. you can evaluate each deal individually and pass on opportunities that don't meet your criteria. this level of transparency and control appeals to investors who want more say in their capital allocation.

Access to Institutional Deal Flow

co-investing provides access to deals you'd never see as an individual investor. professional fund managers have deal sourcing capabilities, industry networks, and due diligence resources that would be impossible to replicate independently.

Enhanced Learning and Network Building

working alongside experienced fund managers provides educational value that extends beyond any single investment. you learn how professionals evaluate deals, structure transactions, and create value. you also build relationships with other sophisticated investors.

Portfolio Concentration Benefits

for investors with conviction about specific deals or sectors, co-investing allows concentrated exposure without the dilution effect of a diversified fund. if you believe strongly in a particular opportunity, you can allocate more capital to it through co-investment.

but here's the important caveat: concentration cuts both ways. while you can increase exposure to your best ideas, you also increase the impact of any individual deal that doesn't work out.

Risks and Key Considerations

co-investing isn't just upside. the same factors that create opportunities also create risks. successful co-investors understand these risks and structure their approach accordingly.

Concentration Risk

the biggest risk in co-investing is concentration. when you invest in a fund, you get diversified exposure to 15-25 companies. when you co-invest, you're making concentrated bets on individual companies. if those companies struggle, your returns suffer disproportionately.

Due Diligence Burden

co-investing requires you to evaluate individual deals, not just fund managers. this means understanding business models, competitive dynamics, management quality, and valuation. many investors lack the time or expertise for thorough deal evaluation.

the temptation is to rely entirely on the fund manager's due diligence. but remember: fund managers are compensated for deploying capital. their incentives aren't perfectly aligned with yours, especially when they're raising additional capital through co-investments.

Limited Control and Influence

as a co-investor, you're typically a passive minority investor. the fund manager controls board seats, major decisions, and exit timing. if you disagree with their approach, you have limited recourse beyond selling your stake (which may not be possible).

Liquidity Considerations

co-investments typically have the same liquidity profile as the underlying businesses — 5-8 year hold periods with no interim liquidity. unlike publicly traded securities or some fund structures, you can't easily exit early if your circumstances change.

Adverse Selection Risk

fund managers have incentives to offer co-investments on deals where they need additional capital or want to share risk. this could mean larger, riskier deals or deals where they have less conviction. the best opportunities might be kept within the fund.

Due Diligence Framework for Co-Investing

successful co-investing requires a systematic approach to evaluating opportunities. you need to assess both the fund manager and the specific deal. here's a framework for making those evaluations:

Fund Manager Assessment

the quality of your co-investment partner matters more than any individual deal. great managers can make average deals successful. weak managers can destroy great opportunities. focus on these key areas:

Deal-Specific Due Diligence

even with a great fund manager, individual deals can fail. conduct independent analysis of each co-investment opportunity:

Red Flags to Avoid

certain patterns indicate higher-risk co-investment opportunities:

• Fund managers who consistently offer co-investments (may indicate capital constraints)
• Deals significantly larger than the manager's typical size
• Auction processes with extensive bidding (high prices, low returns)
• Businesses in declining or disrupted industries
• Heavy reliance on leverage or financial engineering
• Vague or unrealistic value creation plans
• Management teams with poor track records or cultural fit issues

Co-Investment Platforms and Access

the rise of co-investment platforms has democratized access to institutional deal flow. these platforms handle the complexity of sourcing, due diligence coordination, and administrative management that previously required dedicated investment teams.

Search Fund Co-Investment Platforms

platforms focused on search fund opportunities have lowered barriers to entry dramatically. instead of needing relationships with individual searchers, investors can access diversified deal flow through a single platform.

Institutional Co-Investment Platforms

larger platforms serve institutional investors and high-net-worth individuals with significant capital allocations. these platforms typically require higher minimums but offer access to larger, more established fund managers.

Direct Relationships

sophisticated investors with $1M+ allocations can develop direct relationships with fund managers. this provides the best economics (no platform fees) but requires significant capital and investment expertise.

Family Office Networks

many family offices share deal flow and co-invest together. these networks provide access to institutional-quality opportunities while sharing due diligence costs and leveraging collective expertise.

joining a family office network often requires introductions and demonstrated commitment to the asset class. the benefits include higher-quality deal flow, shared resources, and learning from experienced investors.

Building a Co-Investment Portfolio

successful co-investing is about portfolio construction, not individual deal picking. here's how to think about building a diversified co-investment portfolio that balances risk and return:

Allocation Strategy

most sophisticated investors use co-investments to complement, not replace, their fund investments. a typical allocation might be 60% fund investments and 40% co-investments, providing diversification benefits while capturing fee savings.

Diversification Dimensions

diversify across multiple dimensions to reduce concentration risk:

Sizing Individual Investments

position sizing matters in co-investing. too small and transaction costs dominate. too large and concentration risk increases. most experienced co-investors target 5-15 positions in their co-investment portfolio.

Institutional vs Retail Co-Investing

co-investing was originally designed for large institutional investors. the growth of platforms and search fund co-investing has opened access to smaller investors, but the dynamics are different.

Institutional Co-Investing Advantages

large institutions (pension funds, endowments, sovereign wealth funds) have significant advantages in co-investing:

• Direct relationships with top-tier fund managers
• Dedicated investment teams for due diligence
• Large check sizes that fund managers value
• Negotiating power on terms and governance
• Access to the best opportunities first
• Ability to conduct independent due diligence

Retail Co-Investing Evolution

platforms have leveled the playing field for smaller investors by aggregating capital and providing professional management. while retail investors can't compete on check size, they can access similar opportunities through these platforms.

The Convergence Trend

the gap between institutional and retail co-investing is narrowing. platforms are providing institutional-quality services to smaller investors, while competition for capital is forcing GPs to consider smaller co-investors.

search fund co-investing has been particularly important in this convergence. because search fund deals are smaller ($2-15M enterprise value), individual investors can write meaningful checks. a $50K co-investment in a search fund deal provides similar exposure to a $500K co-investment in a traditional PE deal.

Getting Started with Co-Investing

ready to explore co-investing? here's a practical roadmap for getting started:

Step 1: Education and Goal Setting

before writing any checks, understand what you're getting into. co-investing requires commitment to illiquid investments, ongoing due diligence, and concentrated risk. set clear goals for your allocation and expected returns.

Step 2: Platform Research and Selection

research available platforms and their focus areas. search fund platforms offer good entry points due to lower minimums and educational support. evaluate their track records, fee structures, and quality of deal flow.

Step 3: Start Small and Learn

make your first few co-investments smaller than your target size. use them as learning opportunities to understand the process, timeline, and your own preferences. you can always increase position sizes as you gain experience.

Step 4: Build Relationships

co-investing is a relationship business. attend industry conferences, join investor networks, and build connections with fund managers and other co-investors. the best opportunities often come through relationships, not platforms.

Step 5: Develop Your Investment Process

create checklists and frameworks for evaluating opportunities. standardize your approach to due diligence, reference checking, and decision-making. learning from mistakes is expensive in co-investing — better to prevent them with good process.

Frequently Asked Questions

Continue Learning