Co-investment has evolved from an occasional LP perk into a strategic fundraising imperative. Global capital raised through co-investments hit a record $33.2 billion in 2024, with volume increasing 18% year-over-year. Major institutional investors including CalPERS, OCERS, and Texas Teachers have significantly expanded co-investment allocations within their portfolios. For fund managers, the message is clear: LPs increasingly reserve 15-30% of their private investment allocation for co-investment opportunities, and managers without structured programs are losing capital to competitors who have them.
The economics driving LP interest are compelling. Co-investments typically come with reduced management fees and carried interest—often 0/0 or 1/10 structures compared to standard 2/20 fund terms. This fee reduction allows LPs to achieve higher net returns while deploying larger absolute dollars with managers they've already underwritten.
For fund managers, co-investment programs create multiple strategic advantages. They deepen LP relationships beyond transactional fund commitments. They enable larger deals than fund capacity alone permits. They demonstrate deal flow quality and execution capability in real-time. And increasingly, they're table stakes for winning allocations from sophisticated institutional investors.
The Co-Investment Landscape: Understanding Current Market Dynamics
Co-investment demand has surged over the past decade as institutional LPs funneled capital into private markets seeking return enhancement. With public market returns compressing and bond yields remaining historically low despite rate increases, alternative investments became essential to meeting actuarial assumptions.
The 2024 record of $33.2 billion in co-investment capital came with an interesting caveat: that capital was spread across only 40 deals—the lowest deal count since 2013. This concentration reflects several dynamics. Large platform deals requiring significant equity attracted substantial co-investment capital. The challenging fundraising environment meant some managers relied more heavily on co-investment to complete deals their funds couldn't fully support.
One private equity firm reported a 38% increase in co-investment opportunities in 2023 and projected a 47% increase for 2024. This acceleration reflects both LP demand and GP strategy—managers increasingly view co-investment as integral to their capital structure rather than an occasional accommodation.
What LPs Actually Want from Co-Investment Programs
Deal quality matters more than deal quantity. LPs want co-investment in the manager's best deals, not the ones that can't fit in the fund. They've seen managers use co-investment to offload exposure they'd rather not hold themselves.
Timeline predictability enables participation. Co-investments with 48-hour decision windows create challenges for LPs with investment committee approval requirements. The best programs provide advance notice of potential opportunities and realistic timelines for due diligence.
Allocation fairness prevents relationship damage. When multiple LPs want the same co-investment, allocation methodology determines whether relationships strengthen or sour. Transparent allocation policies prevent perceptions of favoritism.
Economics should reflect genuine value sharing. Zero management fee and zero carry is the gold standard for co-investment economics. Some managers charge reduced fees (1% management, 10% carry) which LPs accept for smaller transactions or those requiring significant GP resources.
Structuring Effective Co-Investment Programs
Vehicle structure determines administrative complexity and LP flexibility:
Deal-by-deal co-investment forms a separate vehicle for each transaction. This provides maximum flexibility but creates significant legal and administrative burden.
Dedicated co-investment funds raise committed capital that deploys into co-investment opportunities as they arise. This provides capital certainty and simplifies deal execution.
Hybrid approaches maintain a core co-investment fund while offering deal-by-deal access for larger transactions or specific LP requests.
Eligibility criteria determine which LPs access co-investment:
Fund commitment thresholds tie co-investment access to main fund commitment size. Relationship tenure rewards long-term LPs with priority access. Execution capability prioritizes LPs who can actually participate within deal timelines.
Operational Requirements for Co-Investment Success
Rapid communication systems notify eligible LPs quickly when opportunities arise. Email alone is insufficient; dedicated communication channels, LP portals with alert capabilities, and clear escalation processes ensure LPs learn about opportunities promptly.
Due diligence package preparation must happen in parallel with fund investment processes. LPs conducting independent due diligence need access to materials, management presentations, and data rooms.
Legal documentation efficiency accelerates closing. Standard co-investment agreements, pre-negotiated side letter templates, and streamlined KYC processes reduce the time from LP commitment to legal close.
Multi-vehicle administration tracks investments across main fund and co-investment vehicles. LPs want consolidated reporting showing their total relationship exposure—fund plus co-investments.
How Co-Investment Programs Strengthen Fundraising
Relationship deepening converts transactional LP relationships into partnerships. LPs with both fund and co-investment exposure have higher switching costs and stronger incentive to maintain relationships.
Reference generation comes from satisfied co-investors. When a co-investment generates strong returns, those LPs become powerful references for future fundraising.
Capacity expansion enables larger deals. Fund concentration limits often prevent optimal investment sizes; co-investment capital fills the gap.
Real-time demonstration of capabilities impresses prospects. Showing an active co-investment program demonstrates deal flow, execution, and LP service in ways that historical track records cannot.
Polibit's Co-Investment Administration Capabilities
Multi-Fund Management: Administer main funds and co-investment vehicles from a single platform. Maintain proper separation for legal and accounting purposes while providing consolidated views for LP relationship management.
White-Label Investor Portal: LPs access their complete relationship—fund investments plus co-investments—through a single branded portal. Consolidated performance reporting shows total exposure and blended returns.
Investor CRM: Track LP co-investment preferences, eligibility status, past participation, and communication history. When new opportunities arise, quickly identify eligible LPs and their likely interest.
Digital Subscriptions: Streamlined co-investment onboarding reduces time from commitment to close. LPs complete subscription documentation digitally, with KYC/AML verification against 300+ international watchlists.
Coordinated Distributions: When portfolio companies exit, process distributions across main fund and co-investment vehicles simultaneously. Automated calculations apply correct terms to each vehicle.
Key Takeaways
- • Global co-investment capital reached a record $33.2 billion in 2024, with volume increasing 18% year-over-year
- • Institutional LPs now reserve 15-30% of private investment allocation for co-investment; managers without programs lose allocations to competitors
- • LPs evaluate co-investment on deal quality (not adverse selection), realistic timelines, fair allocation, and appropriate economics (typically 0/0 or 1/10)
- • Operational infrastructure—rapid communication, efficient documentation, multi-vehicle administration—determines program success
- • Co-investment programs strengthen fundraising through relationship deepening, reference generation, and real-time capability demonstration
Ready to build co-investment infrastructure that wins institutional commitments? Polibit's multi-fund administration, digital subscriptions, and investor portal provide the operational backbone for successful co-investment programs. Schedule a Demo to see how we support co-investment administration.
Sources
- Bain & Company Global Private Equity Report 2025
- McKinsey Global Private Markets Report 2025
- Chronograph Co-Investment Landscape Analysis
- Katten Muchin Rosenman LP Investment Trends 2024
- PwC Global M&A Trends in Private Equity 2026