Fundraising and closing

Co-investment

Also called Co-invest, Co-investment rights.

Definition

A co-investment is an investment made by a limited partner, or another investor, directly into a portfolio company alongside a fund, outside the fund's own commitment, typically with reduced or no management fee and carried interest, and often structured through a special purpose vehicle that the general partner controls.

Updated October 9, 2026Checked against our editorial standards

Example

A fund invests $5M in a growth round and the company has $3M more to place. Two LPs hold co-investment rights in their side letters. LP X takes $2M and LP Y $1M through an SPV with no management fee and 10% carried interest. The company is sold at 3x. The fund's $5M becomes $15M and flows through the fund's 20% carry and fee base. LP X's $2M becomes $6M; carry is 10% of the $4M gain, or $400,000, so X receives $5.6M, a 2.8x net. The same dollars through the fund would have come back lower, which is why LPs negotiate for the rights.

Confused with

SPV. The SPV is the entity. The co-investment is the deal done through it.

Direct investment. An LP that invests in a company on its own, without a fund alongside, is investing directly. Co-investment means the fund is in the same round.

Pro rata through the fund. Every LP already owns a share of the fund's $5M. The co-investment is additional, and only for those offered it.

In practice

Allocation is the sore point: who is offered the co-investment, how much, and how quickly, is a conflict the GP has to disclose and apply consistently. The second is cost. Broken-deal expenses on a co-investment that does not close have to be split between the fund and the would-be co-investors on a basis set in advance, and regulators look for funds that have carried the whole bill.

Related terms

SPV (special purpose vehicle)An SPV, special purpose vehicle, is a legal entity, usually a limited liability company or limited partnership, formed to make and hold a single investment or a defined group of investments, with its own investors, bank account, documents and economics, separate from any fund the sponsor manages.
Side letterA side letter is a bilateral agreement between a fund and a single limited partner that grants that LP terms beyond the limited partnership agreement, such as a management fee discount, most-favoured-nation rights, co-investment rights, excuse rights or additional reporting, and must be tracked and honoured in every subsequent calculation and notice.
Management feeThe management fee is an annual charge paid by the fund to the management company, typically 2% of committed capital during the investment period, often stepping down afterwards to a lower rate or a basis of invested capital, to cover salaries, rent and the cost of running the firm.
Expense allocationExpense allocation is the determination of who bears each cost: the fund and its limited partners, the management company out of its fee, or several funds and co-investment vehicles sharing a cost pro rata, according to the expense provisions of the limited partnership agreement and the manager's written allocation policy.