Private Equity Co-Investment Strategies

Abstract

Co-investing in private equity transactions is becoming an increasingly popular investment strategy as traditionally passive investors, such as insurance companies, pension funds, and investment managers, seek to leverage their own deal skills to improve the performance of their fund-of-funds portfolios. In a co-investment transaction, the co-investor will invest in the private equity securities of an issuer on a side-by-side basis with an established private equity fund in which the co-investor is often a limited partner. This article discusses the theory behind co-investment transactions, explains what is driving their popularity, and identifies three distinct strategies that co-investors use in their approach to investing. The article also discusses the typical deal terms of co-investment transactions and explains how the particular co-investment strategy employed by the co-investor will drive the negotiation and resolution of those terms.

TOPICS: Private equity, legal/regulatory/public policy, performance measurement, portfolio management/multi-asset allocation