Co-investment — investing alongside a lead investor (typically a private equity fund or experienced sponsor) in a specific deal — has become one of the most important strategies for sophisticated family offices. It offers direct deal exposure, reduced fee drag, and access to proprietary opportunities at a scale and frequency that pure direct investing programs cannot match.
How Family Office Co-Investment Works
In a typical co-investment, a private equity fund (the GP) identifies an acquisition and offers qualified LPs and other investors the opportunity to invest directly alongside the fund in that specific deal. The co-investor commits capital to the deal rather than to the fund, typically at the same price as the GP and often with reduced or zero management fees and carried interest. In exchange, co-investors accept deal concentration risk and forgo the diversification of a fund structure.
Why Co-Investment Is Attractive to Family Offices
The fee economics are compelling: co-investors often pay no management fee and reduced or zero carry on their co-investment capital, compared to the standard “2 and 20” of a PE fund. For a family office investing $10M in a co-investment alongside a fund, the fee savings over a 5-year hold can be $1M to $2M. Co-investments also allow family offices to concentrate in their highest-conviction ideas and build direct relationships with operators and management teams.
How to Access Co-Investment Opportunities
Co-investment access comes primarily through established LP relationships with private equity funds. GPs offer co-investment rights to their most valued LPs — those who invest meaningful capital, respond quickly to opportunities, and behave as constructive long-term partners. Family offices that want consistent co-investment flow should prioritize building deep relationships with 5 to 10 core fund relationships rather than spreading capital across many funds. Peer networks like TFOA are also a significant source of co-investment introductions.
Structuring Co-Investment Agreements
Co-investment terms are negotiated on each deal and should address: equity ownership percentage, board observer or board seat rights, information rights (quarterly financials, annual audited statements), pro-rata rights for future rounds, anti-dilution protection, tag-along and drag-along rights, transfer restrictions, and exit timing alignment. Engage M&A counsel to review all co-investment documents — even deals presented by trusted sponsors should receive careful legal review.
Key Risks in Co-Investment
Co-investment risk is concentrated by nature — a single bad co-investment can materially impact portfolio performance. Other risks include: adverse selection (GPs sometimes offer co-investment on harder-to-place deals), compressed due diligence timelines, misalignment of exit timing between the GP fund and the co-investor, and limited recourse if the GP manages the asset poorly post-close. The co-investor has no control over the deal — they are a passive investor relying on the GP’s judgment and execution.
Frequently Asked Questions
What is a typical co-investment minimum for family offices?
Co-investment minimums vary widely but typically range from $2 million to $25 million per deal in the lower middle market, and $10 million to $50 million+ for larger transactions. GPs prefer to allocate co-investment to fewer, larger investors rather than managing many small check sizes.
Do co-investors pay carried interest?
Co-investment typically carries reduced or zero carried interest relative to a fund investment, which is one of its primary attractions. However, some GPs charge a “co-investment carry” (often 5% to 10%) particularly on proprietary deal flow. The specific terms are negotiable and should be clearly documented in the co-investment agreement.
How should a family office evaluate co-investment opportunities quickly?
Speed is critical in co-investment — GPs typically give LPs 1 to 2 weeks to decide. Family offices should maintain an internal process that allows fast decisions: a pre-approved investment thesis that guides screening, a streamlined IC approval process for co-investments below a defined threshold, and pre-negotiated legal terms with regular GP partners that reduce documentation time.
