- Co-investments in private equity and venture capital
- What is a co-investment?
- How are co-investments structured?
- The role of the SPV
- Why GPs and LPs pursue co-investments
- Co-investment vs. direct investment
- The risks and drawbacks of co-investments
- Sizing the co-investment and SPV market
- Managing co-investment economics and fees
- How to manage conflicts of interest and allocation
- Understanding key co-investor rights
- The interplay with continuation funds
- The operational playbook for co-investments
- Delivering transparency to co-investors
- Maintaining audit readiness
- Your partner in fund administration
- Frequently asked questions about co-investments
What is a co-investment?
A co-investment is a minority investment made directly into a portfolio company by a fund's limited partners (LP). This investment happens alongside the main private equity or venture capital fund, but is separate from it. The general partner (GP) invites select LPs to add capital to a specific deal, often with reduced or no management fees and carried interest. Because you invest directly, you hold a stake in that one private company instead of a share of the fund's whole portfolio.
Unlike a traditional blind-pool fund, where LPs commit capital without knowing the specific future investments, a co-investment offers complete transparency—the co-investor knows which company their capital is going into from the start.
GPs increasingly offer special incentives to their most strategic LPs, rewarding contributions that go beyond a capital commitment. These arrangements are designed to attract anchor investors, secure industry expertise, and strengthen relationships for future fundraising.
Common incentives include:
Co-investment rights: Allowing select LPs to invest directly into portfolio companies alongside the fund, often with reduced or no fees and carried interest.
Lower fees: Offering lower management fees or a more favorable carried interest structure.
GP-stakes: Granting LPs a share of the GP's own economics. A growing trend is to award LPs a portion of the firm's carried interest, sometimes structured as profit interest units (PIUs), giving them a direct stake in the fund's success alongside the managers.
These arrangements deepen alignment between a GP and its key partners, serving both capital formation and long-term investor relations.
How are co-investments structured?
To maintain clean books and records and isolate risk, co-investment capital is never commingled with the main fund's assets. This separation is a core principle of co-investing, and is achieved by incorporating a distinct legal entity for the sole purpose of making that single investment.
This legal separation ensures that the liabilities of one investment cannot affect the assets of another. So if a co-investment fails, it would not impact the financial health of the main fund or its other portfolio companies.
For your operations team, the implications are practical. Each co-investment adds a distinct entity to your administrative workload with its own bank account, legal contracts, and tax filings, all dictated by its specific fund structures. If your private equity firm executes five co-investments in a year, you are responsible for administering five new entities, each with its own lifecycle. Each one operates like a miniature private fund, with its own group of investors, its own economics, and its own cycle of reporting and compliance obligations running in parallel to the primary fund.
The role of the SPV
The most common legal structure used to facilitate a co-investment is a special purpose vehicle (SPV). Many LPs and independent sponsors create bespoke pools of capital to invest alongside a PE fund, using SPVs to gain more visibility and autonomy than they would in a traditional fund structure. An SPV is a legal entity, usually a limited liability company (LLC) or a limited partnership (LP), that acts as a container for the deal. It pools the capital from all participating co-investors and then makes a single, unified investment into the target company.
This structure is highly beneficial for the portfolio company receiving the investment. Instead of adding dozens of individual co-investors to its cap table, it adds just one: the SPV. This simplifies its own administrative overhead, as they only need to communicate with and send reports to the SPV's manager, who is the GP.
The process of forming an SPV can be handled in two very different ways.
The traditional method: This involves engaging law firms to draft bespoke legal documents, coordinating paperwork with each investor, chasing down wet-ink signatures, and manually setting up a new bank account. It’s slow, expensive, and prone to administrative errors.
A modern platform approach: This uses integrated software with standardized templates, electronic closings, and integrated banking to manage the flow of funds. It reduces the time, cost, and risk of SPV formation and management.
Why GPs and LPs pursue co-investments
Co-investments benefit both the fund manager and the investor, and understanding the motivations of both sides helps support the operational mechanics of the deal.
For GPs, co-investments offer several strategic advantages.
Co-investments give GPs a ready source of capital to pursue larger deals, including growth equity rounds and buyout transactions where the deal size might exceed what the main fund can commit alone. If a fund's limited partnership agreement (LPA) has concentration limits that restrict how much it can invest in a single company, a co-investment allows the GP to complete the transaction without violating those terms.
Offering a co-investment also deepens relationships with key LPs. Access to your best deals rewards your most important partners and encourages commitments to future funds.
Offering a co-investment opportunity signals high conviction in the target company, reinforcing the GP's investment thesis to both LPs and the broader market.
For LPs, the appeal of co-investing is just as strong.
As holding periods reach record lengths, co-investments give LPs targeted exposure to a specific company or industry they find attractive, with more control over capital deployment than a blind-pool fund allows.
Co-investments can also deliver higher returns, particularly when fees are reduced or waived entirely.
LPs also get a closer look at the GP's investment process. They can review the due diligence for a specific company, often summarized in an investment memo, giving them a window into how the GP evaluates and decides on deals.
Co-investment vs. direct investment
It helps to place a co-investment next to the other ways an investor can put capital to work in private markets. The co-investment vs. direct investment distinction comes down to who sources and controls the deal.
In a co-investment, an LP invests alongside a deal the GP has already sourced, usually through an SPV, and takes a passive minority stake. In a direct investment, the investor sources, diligences, and executes the deal on its own, and holds the position directly. A standard blind-pool LP fund commitment sits at the other end: the LP commits capital to a fund, and the GP decides which companies to back later.
Feature | Co-investment | Direct investment | Blind-pool fund commitment |
Who sources the deal | GP | The investor | GP |
Company known upfront | Yes | Yes | No |
Typical vehicle | SPV | Direct holding | Commingled fund |
Investor control | Passive minority | Active | Passive |
Typical fees | Low or none | Internal cost only | Management fee plus carry |
One quick clarification: co-investments also differ from secondaries, which involve buying an existing stake from another investor rather than funding a new, GP-sourced deal.
A co-investment pairs the deal-specific transparency of a direct investment with the GP-led sourcing of a fund commitment. In most cases, it also adds a standalone entity to administer.
The risks and drawbacks of co-investments
Co-investments have clear advantages, but they come with structural drawbacks worth weighing before committing capital.
Concentration risk: A co-investment ties committed capital to a single company, not a diversified portfolio, so one failure can erase the position.
A passive minority position: Co-investors hold a minority stake with limited control and little voting power, so the GP drives strategy, follow-on funding, and exit timing.
Compressed due diligence: Opportunities often arrive on tight timelines, so an LP may have only days or weeks to run due diligence and commit.
For LPs, the offsetting factors are the lower-fee economics and targeted exposure covered above. The right call depends on the LP's diversification, its appetite for single-name risk, and whether it has the internal capacity to diligence deals quickly. Having documented allocation and diligence processes in place lets a firm participate without overstretching its team.
Sizing the co-investment and SPV market
Co-investments have become a mainstream way for LPs to fine-tune a portfolio. They add concentrated exposure to a handful of high-conviction deals on top of diversified blind-pool commitments.
Venture activity is rebounding, which tends to expand the pipeline of deals available for co-investment. Carta funds raised $3.9 billion across 86 new funds in the first quarter of 2026, per Carta's fund performance data. Median net total value to paid-in (TVPI) rose for nearly every recent vintage. TVPI measures a fund's total value relative to the capital LPs have paid in.
For a Fund CFO, the trend line matters. Larger SPVs and a healthier fundraising market mean more co-investment opportunities to evaluate — and more parallel entities to administer once they close.
Managing co-investment economics and fees
One of the main attractions of a co-investment for an LP is its unique financial structure. These deals can come with significantly reduced fees, and some are even structured on a "no fee, no carry," basis.
Management fees: These are the annual fees LPs pay the GP to cover the fund's operational costs. In a co-investment, this fee is often waived because the GP is already being compensated for managing the deal through the main fund.
Carried interest: This is the GP's share of the fund's profits, typically taken after all LPs have received their initial capital back. Waiving carried interest on a co-investment means that a larger portion of the deal's upside goes directly to the co-investors.
As attractive as this is for LPs, the bespoke economics still create an operational challenge for a fund CFO. The co-investment vehicle requires its own parallel distribution waterfalls—the LPA rules that dictate how profits are distributed among all parties.
Because the SPV’s terms differ, its waterfall must be calculated and managed separately from the main fund's waterfall. This isn't a one-time calculation; it must be performed accurately for every distribution over the life of the investment. Spreadsheets make these parallel calculations error-prone, which can misallocate funds and damage LP relationships.
How to manage conflicts of interest and allocation
Because co-investments involve preferential treatment for certain investors, they fall under strict private market regulations and are an area of focus for bodies like the U.S. Securities and Exchange Commission (SEC). Fund managers must be diligent in managing potential conflicts of interest to ensure all investors are treated fairly and that the GP is upholding its fiduciary duty.
A conflict of interest arises whenever the GP's interests may not align with those of all LPs. For co-investments, these tend to surface in a few key areas.
Allocation: The process for deciding which LPs are offered the chance to co-invest must be fair, consistent, and defensible. You should have a clear, documented policy that governs how these opportunities are allocated, rather than picking favorites on a deal-by-deal basis.
Expenses: If a deal falls through after the SPV has incurred legal and due diligence costs, who is responsible for those broken-deal expenses? This must be clearly defined in the co-investment documents before any money is spent.
Exit: The terms of an exit need to be equitable. If the GP sells a portion of the main fund's stake, co-investors should have a clear understanding of their rights to participate in that sale.
The best defense against regulatory scrutiny is thorough documentation. Every decision related to the allocation, management, and exit should have a clear, recorded rationale stored in a centralized system.
Understanding key co-investor rights
When LPs agree to co-invest, they often negotiate for specific rights documented in the SPV's legal agreements. For the fund's finance and operations team, these are operational triggers that must be tracked and correctly executed during the life of the investment, particularly during a liquidity event, like a sale, secondary, or IPO.
Two of the most common rights are tag-along and drag-along rights.
Tag-along rights: These rights protect a minority investor. They give the co-investor the right to "tag along" and participate in a sale of the company if a majority shareholder, like the GP, decides to sell its stake.
Drag-along rights: These rights protect the majority shareholder. They give the GP the right to "drag" a minority investor along into a sale of the company. This prevents a small number of investors from blocking a sale that the majority has approved.
Other rights may also be negotiated, such as information rights that specify the level of reporting the co-investor will receive, or pre-emptive rights that allow them to participate in future funding rounds, including a potential down round.
The interplay with continuation funds
The use of continuation funds remains a significant and increasingly complex trend in private markets, especially as GPs navigate sluggish exit environments. Secondary transactions, which include continuation fund deals, saw sharp growth during the pandemic, peaking at $7.4 billion transacted on the Carta platform in 2021.
However, the latest data shows a marked contraction in activity. In 2023, secondary transaction value on Carta dropped to $4 billion, its lowest level in four years. While this reflects a cooling trend for direct startup liquidity events, the global secondaries market overall (spanning LP-led, GP-led, private equity, credit, and infrastructure) rebounded sharply, exceeding $100 billion in total transaction value in just the first half of 2025.
These figures underscore both the volatility and the growing strategic importance of secondaries for CFOs seeking liquidity options. As funds approach the end of their typical ten-year lifespans, GPs may launch continuation funds to purchase successful assets from aging portfolios. This process delivers liquidity to original LPs but also creates a critical juncture for co-investors: each must decide whether to cash out or roll over their investment into the new fund, often involving entirely new economic terms.
For CFOs, administering such transactions imposes significant operational demands: tracking individual investor elections, processing cash distributions, generating new legal documentation, and adapting to the new fund structure. At multi-billion-dollar volumes, efficient management and decision-making are more important than ever.
The operational playbook for co-investments
The day-to-day work of administering parallel investment structures is where most finance teams feel the strain, and disconnected spreadsheets are not built for it.
A purpose-built platform manages the full co-investment lifecycle, from formation to exit. It connects all the disparate pieces of a co-investment into a single, cohesive system: the legal documents, the banking, the accounting, and the investor communications. That single view reduces errors, cuts administrative time, and gives your team consistent control as deal volume grows.
Delivering transparency to co-investors
Your co-investors have high expectations for the information they receive, and they often build these expectations directly into their deals. They want timely, detailed, and accurate reporting on their investment's performance, which you can provide through dedicated portfolio data collection and monitoring tools. Manually assembling and distributing these reports for each SPV is a significant administrative burden that can lead to delays and errors, reflecting poorly on your firm.
Maintaining audit readiness
Each co-investment SPV is its own legal entity and, as such, typically requires its own annual audit. If you're on a finance team that manages multiple SPVs, the annual audit season can quickly become a major bottleneck. The process of gathering documents and answering auditor questions for each entity can consume a tremendous amount of time and effort.
An integrated platform with an event-based general ledger and a dedicated auditor portal changes this process. It makes you "audit-ready," from day one because every transaction, capital call, distribution, and legal document is already captured and linked within the system. You can grant your auditors secure, permissioned access to this portal, allowing them to pull their own samples and trace transactions back to the source documents. This dramatically reduces the friction and time required to complete an audit.
Your partner in fund administration
Co-investments are a powerful strategic tool for building LP relationships and executing larger deals. Their operational demands, however, grow with every deal your firm completes. Attempting to manage this growing complexity with tools not designed for the task, like spreadsheets, introduces an unacceptable level of risk to your firm.
A unified platform provides the operational backbone to execute a sophisticated investment strategy without letting the back office fall behind.
Request a demo to see how you can form, close, and administer your co-investment vehicles on a single platform.
Frequently asked questions about co-investments
What is the difference between a direct investment and a co-investment?
In a direct investment, the investor sources, performs due diligence on, and executes an investment on their own. In a co-investment, the GP sources the deal and invites LPs to participate alongside the fund.
What is the difference between a co-investor and an LP?
An LP invests in the main, blind-pool fund, committing capital before the specific investments are known. A co-investor is often an existing LP who chooses to make an additional, separate investment into a single, specific company alongside the fund.
Are co-investments only for private equity funds?
While co-investments are strongly associated with private equity, they're also a common practice in venture capital, often structured through SPVs. The use of these vehicles has expanded in lockstep with the VC industry, and the annual count of new SPVs has grown 116% compared to 2019. The structure is also used in other private markets and alternative investments, such as real estate, hedge funds, and private credit.
What is a co-investment fund?
A co-investment fund is a pooled vehicle that a manager raises specifically to invest alongside other funds' GP-sourced deals. Rather than backing a single company through one SPV, it deploys capital across many co-investments on behalf of its own LPs. That gives those LPs diversified access to deals they might not source individually.
Do co-investors pay management fees?
Co-investments typically carry lower or no management and performance fees compared with investing through the fund.
What is a co-investment SPV?
A co-investment SPV is a separate legal entity that pools co-investors' capital to hold a single investment alongside the fund.
Who can make co-investments?
Co-investments are usually offered to existing LPs and institutional investors, including family offices and funds of funds, or accredited investors the sponsor invites into a specific deal.
How are co-investments reported to investors?
Investor reports contain statements and performance metrics tracked at the SPV level, ideally delivered in real time through a fund administration platform.
DISCLOSURE: This communication is on behalf of eShares, Inc. dba Carta, Inc. ("Carta"). This communication is for informational purposes only, and contains general information only. Carta is not, by means of this communication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests. Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein. © 2026 Carta. All rights reserved. Reproduction prohibited.
