Equity co-investment

Diagram of the structure of an equity co-investment in a portfolio company alongside a financial sponsor

An equity co-investment (or co-investment) is a minority 22 investment, made directly into an operating company, alongside a financial sponsor or other private equity investor, in a leveraged buyout, recapitalization or growth capital transaction.[1] In certain circumstances, venture capital firms may also seek co-investors.[2]

Overview

Private equity firms seek 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 fund's 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.[3]

Typically, co-investors are existing limited partners in an investment fund managed 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 or carried interest on 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 equity fund of funds and 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.[4][5]

See also

References

  1. ^ "Equity Co-Investment Definition". Investopedia. Retrieved 18 February 2022.
  2. ^ "Equity Co-Investment". Corporate Finance Institute. Retrieved 18 February 2022.
  3. ^ "The advantages of co-investments – Institutional". BlackRock. Retrieved 18 February 2022.
  4. ^ Greene, David; Rigdon, Amy. "Private equity coinvestment". Latham & Watkins. Retrieved 18 February 2022.
  5. ^ "The value of co-investment and secondaries, and why GPs are growing more selective". Schroders. Retrieved 18 February 2022.

External links

  • CalPERS - Private Equity Industry Dictionary
  • AltAssets Glossary
  • AltAssets: The direct route
  • Co-investments in funds of funds and separate accounts
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