Why Co-Investing in Private Equity?
Private equity co-investments have become an increasingly important strategy for ultra-high-net-worth (UHNW) individuals and their family offices, potentially offering greater flexibility, lower fees, and access to potentially exclusive investment opportunities. In a competitive fundraising environment and amid uncertainty around interest rates, co-investments have emerged as a key strategy for general partners (GPs) to attract capital.
For family offices, co-investing provides a sophisticated approach to adapting to these market dynamics while enhancing portfolio construction and long-term wealth planning.
Wondering if a Family Office Is Right for You?
Why Co-Investing Matters for Family Offices
Traditional private equity funds offer diversified exposure but often come with higher fees and limited customization. While these vehicles remain attractive for many investors, others seek greater influence over capital deployment and investment selection.
Co-investing enables families to participate directly alongside leading private equity firms, gaining access to institutional-quality opportunities while maintaining lower costs. This approach aligns well with long-term financial objectives, strategic asset allocation, and legacy planning.
Understanding Equity Co-Investment Funds
Equity co-investment funds allow investors to participate in either a fund structure or specific transactions alongside a lead sponsor. This structure provides more direct exposure to curated deals within a defined allocation framework, typically at a reduced fee compared to traditional private equity fund investments.
Opportunities in Private Equity Co-Investing
Co-investments span industries and asset classes, providing UHNW families with access to more exclusive transactions such as:
- Growth-Stage Technology and Venture Capital: Participate in high-growth tech companies before they reach the public markets.
- Real Estate Investments: Gain exposure to trophy assets, commercial developments, and niche opportunities.
- Sector-Specific Transactions: Focus on specialized industries such as healthcare, infrastructure, or energy.
Key Considerations: The Advantages and Challenges of Co-Investing
While co-investing can be a powerful portfolio-enhancing tool, it is best suited for sophisticated investors with the resources and expertise to assess direct private equity transactions alongside their advisors.
- Advantages:
- Access to Institutional-Quality Deals: Co-invest alongside top-tier private equity sponsors.
- Lower Fee Structures: Co-investments often avoid traditional fund management fees and carried interest.
- Targeted Investment Opportunities: Allocate capital to sectors aligned with strategic investment priorities.
- Risks and Considerations
- Liquidity Constraints: Co-investments typically require long-term capital commitments.
- Governance Complexity: Direct investments may offer limited governance rights, especially in minority positions.
- Variable Risk Profiles: Risk levels vary significantly across industries and market cycles.
Best Practices for Co-Investing in Private Equity
For family offices considering co-investment opportunities, adhering to a disciplined investment framework is essential. Key best practices include:
- Align allocations with broader portfolio strategy
- Determine desired level of engagement (active vs. passive)
- Establish liquidity guidelines
- Clarify governance rights and approval mechanisms
- Review all fee structures for transparency
- Conduct rigorous due diligence
- Assess tax implications in advance
- Maintain proactive oversight and reporting
IEQ Capital: A Strategic Partner for Co-Investing
IEQ Capital leverages deep investment expertise and a broad private market network to source compelling co-investment opportunities for UHNW families. Our team provides a highly curated approach to deal selection, due diligence, and portfolio integration, ensuring that each investment aligns with your broader financial objectives. We aim to provide institutional-grade investment oversight tailored to the needs of family office wealth management.
Investing with Your Complete Financial Picture in Mind
Private equity co-investing is about more than returns—it is about aligning each opportunity with your long-term vision, risk preferences, and family legacy. At IEQ Capital, we work closely with families to identify the right opportunities and structure investments with a comprehensive view of your financial landscape.
If you are considering private equity co-investments, we invite you to connect with us to explore how we can help structure the right opportunities for your portfolio.
Risk Disclaimers
- Illiquidity: Private equity co-investments are inherently illiquid and may be subject to extended holding periods, often 7–10 years or longer. There is typically no established secondary market for these investments, and investors should not expect to have the ability to sell or transfer their interests prior to a liquidity event, such as a sale or IPO.
- Concentration and Lack of Diversification: Co-investments generally involve exposure to a single company, sector, or transaction. This lack of diversification increases the potential impact of adverse developments and can amplify volatility and downside risk relative to diversified fund investments.
- Information Asymmetry and Limited Control: The lead sponsor typically maintains control over the investment and has greater access to material, non-public information. Co-investors may receive limited reporting and have little or no influence over strategic decisions, governance, or exit timing, which may adversely affect outcomes.
- Execution and Deal Risk: There is no assurance that a proposed co-investment will be completed as expected. Risks include the potential for changes in deal terms, failure to close, financing shortfalls, or issues uncovered late in the diligence process. Such disruptions can result in delays or loss of investment opportunity.
- Valuation Uncertainty: Valuations of privately held companies are inherently subjective and may be based on assumptions, models, or comparable data that do not reflect actual market conditions or future performance. As a result, reported valuations may differ materially from realizable value upon exit.
- Operational and Management Risk: The performance of a co-investment is closely tied to the capabilities and decisions of the portfolio company’s management team and the lead sponsor. Mismanagement, strategic missteps, or unforeseen operational challenges can materially impact returns or result in loss of capital.
- Market, Economic, and Geopolitical Risk: Co-investments are exposed to broader macroeconomic, industry-specific, and geopolitical risks. Factors such as inflation, interest rate fluctuations, supply chain disruptions, regulatory changes, and political instability can negatively impact company performance and investment outcomes.