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Becker Private Equity & Business Podcast
Private Equity & Co-Investing 10-28-25
00:04:10
In this episode, Scott Becker breaks down why some private equity funds embrace co-investing while others avoid it.
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This is Scott Becker with the Becker Business Podcast. The Becker Private Equity Podcast. Today's discussion is about private equity and co investing. And this comes out of a listener question who'd asked about why do some LPs, why do some private equity funds do a lot of coordinated co investing and some don't? And so the gist of it is there's two different types of co investing. There's private equity funds co investing with other other private equity funds, and then there's private equity funds that allow some of the limited partners to co invest side by side with them. And each of these have a lot in common. First, allowing co investing or doing co investing allows a private equity fund to either get into bigger deals or touch more deals and use their capital in a more allocated way by sharing some of the equity in the deal. Or also to get into deals with with other private equity funds that they might otherwise not get into by essentially investing with with allies in in certain deals. Similarly, when a private equity fund lets their LPs invest in deals side by side with them, some of the positives are they're bringing a ready source of capital with them, which might make it easier for them to close deals without depleting so much of their own capital. They're also allowing sometimes some good names to, to be part of the cap table, whether other funds, other limited partners or people with other allied interest and so forth. I know in sort of the 8 to 10 deals that I've invested as an LP, as a CO investor, it's sometimes because someone would like us to be involved on the cap table as well. So you see some of that. The third concept is that sometimes from a co investor LP's perspective, you're right in the deal. You've already had the private equity fund do your diligence and you're also not paying on your co investment. You're not paying the carry fees and the management fees. So those are some of the reasons why people like to co invest in deals. The flip side is by and large as an lp, I much prefer to just invest in the fund than to co invest more and more. It's easier to keep track of, it's easier to keep, to keep organized, it keeps my life less complex and so forth. Now, some of the concepts, some of the downs, the negatives to private equity funds allowing co investment or doing co investment, sometimes it causes more complication because now they've got a line just not around their fund, but around other investors in the deal and they've got to coordinate Those types of things make sure they go. The private equity fund is also sometimes giving up management fees and giving up the carried interest concepts that come with investors in the fund that typically they're not getting that when somebody is co investing in the deal with them. And finally sometimes it could mean that they're giving up control because their co investors can vote separately than the private equity fund doing a lot of deals. The co investors come in aligned with voting agreements with the private equity fund too. Again, those are some of the thoughts on co investing and why private equity funds do it and don't do it. The only other thing I'll say is an LP where I used to love to do it is when I'm closely tied to management companies or investment companies and they're just great at what they do and if given the opportunity, I would invest with them because I felt like those management companies were just absolutely great as investors and managers and thus it was great to have the chance to co invest with them. And also it allowed me to invest without having to do lots of diligence. And again, typically when I was co investing I wasn't putting so much money in that it would be, you know, that that I would be there would be economically huge risks. The flip side is I wasn't making deep enough investments to really make a difference in my portfolio either. In any event, there's a of different thoughts on co investing and investing. I hope you find this useful. Thank you for listening to the Becker Business, the Becker Private Equity podcast. Thank you very, very.