Side By Side: Navigating Co-Investments

Co-investment transactions—in which investors and a sponsor's primary fund invest alongside each other in an M&A transaction—have become a staple of today's private equity landscape.

It's not hard to see why: investors rely on co-investments to build out their private equity exposure on a selective basis and to increase their net returns, since co-investors generally pay reduced or no management fees or carry. Sponsors, in turn, use co-investments to attract investors to their funds, to build or grow relationships with prospective or existing limited partners and to facilitate acquisitions that would otherwise violate a fund's diversification limits.

Active or passive?

Generally, co-investments come in two varieties: active and passive.