Co-investments: The jewel in the private equity crown

Before digging into why co-investments are the jewel in the private equity (PE) crown, as we claim, a little background on their emergence and trends are in order.

Co-investments really came to light in the wake of the Global Financial Crisis as private equity managers/general partners (GPs) found it difficult to raise capital for PE funds from investors spooked by the events of the time.

Their solution was to turn to co-investments by inviting especially trusted clients/limited partners (LPs) to invest alongside them into individual companies, rather than into companies via traditional PE funds.

The chance to invest directly in high-conviction deals and companies differs from traditional PE funds where investors commit capital on a 'blind-pool' basis.

Blind-pool refers to committing capital to a PE fund without knowing, beforehand, the identity of companies that will be acquired.

Put simply, co-investors invest selectively alongside a GP when presented opportunities, allowing them to conduct their own due diligence on the target company.

For LPs like MLC, co-investments represent a more targeted allocation of capital, enabling better access to private companies and deeper insight than is typically available through fund investments.

For GPs, co-investing provides a way to invest in attractive businesses that may be too large for a single private equity fund to hold due to concentration limits. It also allows them to work closely with LPs and build relationships ahead of future opportunities.