The Co-Investment Discount Is Not Free Money
Co-investments have become a standard part of private-equity relationships, giving LPs lower fees and more control over where capital goes. For family offices, those terms need to be weighed against concentration, deal selection and the GP’s reasons for syndicating.
McKinsey’s 2026 survey of 300 limited partners found that 52% regarded access to co-investments as a requirement when committing to a private-equity fund. Roughly half of that group wanted co-investments to represent at least 20% of committed capital, while 39% of LPs without a formal requirement still preferred managers that offered them.
An LP invests alongside a private-equity fund in an individual company, usually with lower management fees and carried interest than it would pay through the main fund. A family office reduces fee drag and chooses individual companies rather than accepting the portfolio a manager builds over several years, but the exposure may still sit in the same sector, financing cycle or economic theme as assets it already owns. The GP may be pursuing a transaction that is too large for its main fund, working within internal concentration limits or trying to reduce the amount of debt needed to complete the acquisition. Preqin has reported that tighter credit conditions pushed some managers to use more equity in buyouts, increasing their reliance on LP co-investment capital. A transaction that exceeds a fund’s concentration limit deserves a different reading from one the manager could finance itself but prefers to share.
Lower fees do not remove deal risk
A family investing through a traditional buyout fund pays management fees and, if the investment performs, carried interest. A co-investment may reduce or remove some of those charges, lowering the gross return needed to produce the same net result. The GP still identifies the target, negotiates the purchase price, structures the financing and develops the investment case before inviting outside capital. The LP decides whether to participate, but it does not control how the deal was sourced or structured.
Family offices need to know how much the main fund is committing, whether it invests on the same terms and how much of the GP’s own capital is exposed. A fee discount does not compensate for weak alignment.
Concentration can build across separate vehicles
Co-investment offers sometimes duplicate exposure already held through buyout funds and direct investments. The positions sit in separate vehicles, but all depend on the same market.
McKinsey found that LP co-investments accounted for about 25% of private-equity deployment value in India between 2021 and 2025. Around 72% of that capital went into five sectors, led by new technology, followed by financial services, consumer goods, IT services and healthcare.
A technology founder can therefore own private-equity funds, venture investments and a low-fee software co-investment while remaining heavily exposed to the same technology cycle, financing conditions and exit market. The share of the private-equity allocation invested through co-investments says less than the family’s total exposure to the same economic forces.
Deal speed changes the diligence
Co-investment opportunities arrive on a much shorter timetable because the GP is already negotiating the acquisition and needs certainty over financing. The company still needs to be reviewed, the valuation challenged, the debt structure understood and the downside tested. Legal terms, governance rights and follow-on obligations also need scrutiny.
Family offices without a dedicated private-equity team sometimes struggle to do that work independently within the time available. Preqin has noted that less experienced LPs increasingly use dedicated co-investment funds, while larger investors with established programmes continue to invest directly. External diligence, legal advice and monitoring reduce the apparent cost advantage. The economics weaken further if the family has little choice but to rely on the GP’s own investment case.
Access is becoming less scarce
McKinsey’s 2026 survey suggests that co-investment rights are becoming a standard fundraising demand rather than an exceptional benefit. Goldman Sachs raised US$11.7bn across its latest private-equity funds and related vehicles in September, including US$500m for co-investment vehicles.
Ardian told Preqin that its co-investment team rejects more than 95% of the deals it sees, despite receiving them through established GP relationships. As access spreads, the ability to decline matters more.
Lower fees, direct access and a closer GP relationship can make a deal look attractive before the underlying company has been judged against other uses of capital. A family office still needs to decide whether the transaction improves the portfolio or merely increases an exposure it already has.
The cheque is not the end of the exposure
A large economic stake does not necessarily come with much control. The GP usually handles the board relationship, negotiations with management, refinancing and the eventual exit, while information rights, board observation rights, consent provisions and access to management differ from one deal to another.
If the company falls behind plan and needs more equity, the GP decides whether to support it. A family office that stays out risks dilution; one that joins the round puts more money into an investment already under pressure.
The first cheque therefore does not define the final exposure. Family offices need enough liquidity for follow-on funding and a clear limit on how much more they are prepared to invest.
The portfolio decides whether the discount is real
Co-investments reduce private-equity fees and give families more control over where capital goes. They also add to exposure already held through funds, direct investments or the operating business. A family office should judge the transaction against the rest of its balance sheet rather than against the fee schedule of the main fund. If the deal depends on the same sector, financing conditions or exit market as assets the family already owns, the lower fee does little to improve the portfolio.
ROTHARIA VIEW
A co-investment should improve the family portfolio before the fee saving is counted. The family needs to know why the GP is syndicating, how much the main fund is committing, whether the economics are aligned, how the deal changes total sector and financing exposure, whether there is enough time to assess the company independently, and how much follow-on capital the business may require later.
