About Co-investment Market Dynamics

• Market structure: Co-investment rights typically granted to limited partners alongside committed capital in primary funds

• Traditional economics: GPs historically charged 8–10% carry on co-investments with reduced or zero management fees

• Current pressure: Heightened competition among managers for LP commitments is compressing co-investment economics

General partners are increasingly offering reduced or zero carry on co-investment opportunities as competition for LP commitments intensifies. The shift represents a marked departure from the traditional 8–10% carry structure that has prevailed on co-investments for the past decade. Some managers are now structuring co-investment rights with zero carry and no management fee, positioning these opportunities as pure value-add for anchor investors.

The economics compression on co-investments reflects a broader rebalancing of negotiating leverage between GPs and LPs. For much of the 2010s, co-investment carry was a relatively stable revenue stream for managers — LPs valued the deal flow and deployment flexibility enough to accept economics closer to primary fund terms. The current environment has reversed that calculus. With more capital chasing relationships and fewer standout performers commanding pricing power, managers are using co-investment terms as a differentiation tool in fundraising conversations.

The trend raises a forward-looking question about fund-level returns. Co-investments have historically contributed 15–25% of total GP revenue at established platforms, according to placement agents active in the market. If that stream erodes across a meaningful cohort of managers, the impact shows up in two places: lower effective management fees as a percentage of total AUM, and pressure to deploy primary fund capital more aggressively to compensate. For LPs evaluating new commitments, the co-investment terms are now a signal of competitive positioning — zero-carry structures may indicate a manager operating from a weaker fundraising position rather than pure generosity.

Source: Private Equity International