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Anequity co-investment(or co-investment) is aminorityinvestment, made directly into an operating company, alongside afinancial sponsoror otherprivate equityinvestor, in aleveraged buyoutrecapitalizationorgrowth capitaltransaction. In certain circumstances,venture capitalfirms may also seek co-investors.

Private equity firmsseek co-investors for several reasons. Most important of these is that co-investments allow a manager to make larger investments without either dedicating too much of the funds capital to a single transaction (i.e., exposure issues) or sharing the deal with competing private equity firms. Co-investors bring a friendly source of capital.

Typically, co-investors are existinglimited partnersin aninvestment fundmanaged by the lead financial sponsor in a transaction. Unlike the investment fund however, co-investments are made outside the existing fund and as such co-investors rarely pay management fees orcarried intereston an individual investment. Co-investments are typically passive, non-controlling investments, as the private equity firm or firms involved will exercise control and perform monitoring functions. For large private equityfund of fundsand other investors, co-investments are a means of increasing exposure to attractive transactions and making investments that have a higher return potential because of the lower economics paid to the general partner. As a result, many private equity firms offer co-investments to their largest and most important investors as an incentive to invest in future funds.

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This page was last edited on 16 November 2017, at 13:15

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