An equity co-investment (or co-investment) is a minority investment, made directly into an operating company, alongside a

financial sponsor A financial sponsor is a private-equity investment firm, particularly a private equity firm that engages in leveraged buyout transactions. Sponsors and management In addition to bringing capital to a deal, financial sponsors are expected to bring ...

or other

private equity In the field of finance, the term private equity (PE) refers to investment funds, usually limited partnerships (LP), which buy and restructure financially weak companies that produce goods and provide services. A private-equity fund is both a t ...

investor, in a

leveraged buyout A leveraged buyout (LBO) is one company's acquisition of another company using a significant amount of borrowed money ( leverage) to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loa ...

recapitalization Recapitalization is a type of corporate reorganization involving substantial change in a company's capital structure. Recapitalization may be motivated by a number of reasons. Usually, the large part of equity is replaced with debt or vice versa. ...

growth capital Growth capital (also called expansion capital and growth equity) is a type of private equity investment, usually a minority investment, in relatively mature companies that are looking for capital to expand or restructure operations, enter new mark ...

transaction. In certain circumstances,

venture capital Venture capital (often abbreviated as VC) is a form of private equity financing that is provided by venture capital firms or funds to start-up company, startups, early-stage, and emerging companies that have been deemed to have high growth poten ...

firms may also seek co-investors.

Overview

Private equity firm A private equity firm is an investment management company that provides financial backing and makes investments in the private equity of startup or operating companies through a variety of loosely affiliated investment strategies including lev ...

s seek co-investors for several reasons. Most important of these is that co-investments allow a manager to make larger investments without either dedicating too much of the fund's capital to a single transaction (i.e., exposure issues) or sharing the deal with competing private equity firms. Co-investors bring a friendly source of capital. Typically, co-investors are existing

limited partners A limited partnership (LP) is a form of partnership similar to a general partnership except that while a general partnership must have at least two general partners (GPs), a limited partnership must have at least one GP and at least one limited ...

in an

investment fund An investment fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These advantages in ...

managed by the lead financial sponsor in a transaction. Unlike the investment fund however, co-investments are made outside the existing fund and as such co-investors rarely pay management fees or

carried interest Carried interest, or carry, in finance, is a share of the profits of an investment paid to the investment manager specifically in alternative investments (private equity and hedge funds). It is a performance fee, rewarding the manager for enhanc ...

on an individual investment. Co-investments are typically passive, non-controlling investments, as the private equity firm or firms involved will exercise control and perform monitoring functions. For large private equity

fund of funds A "fund of funds" (FOF) is an investment strategy of holding a portfolio of other investment funds rather than investing directly in stocks, bonds or other securities. This type of investing is often referred to as multi-manager investment. A ...

and other investors, co-investments are a means of increasing exposure to attractive transactions and making investments that have a higher return potential because of the lower economics paid to the general partner. As a result, many private equity firms offer co-investments to their largest and most important investors as an incentive to invest in future funds.

References

External links

CalPERS - Private Equity Industry DictionaryAltAssets GlossaryAltAssets: The direct routeCo-investments in funds of funds and separate accounts
Private equity Corporate development {{private-equity-stub

Overview

See also

References

External links