Episode Overview

Podcast: Becker Private Equity & Business Podcast
Host: Scott Becker
Episode: Private Equity & Co-Investing
Date: October 28, 2025

In this episode, Scott Becker dives into the dynamics of co-investing within private equity, addressing a listener’s question: Why do some limited partners (LPs) and funds prefer co-investing while others do not? The episode explores the different structures of co-investments, motivations on both sides, benefits and drawbacks, and Scott’s personal experience as an LP and co-investor.

Key Discussion Points & Insights

1. Types of Co-Investing

• PE Funds Co-Investing with Other Funds

  • Private equity funds may join together to pool resources for bigger deals or access more deals.
  • These partnerships help leverage capital across a broader range of investments.

• PE Funds Allowing LPs to Co-Invest Side by Side

  • LPs (limited partners) may be invited to invest directly alongside the primary fund in particular deals.
  • This brings in extra capital and sometimes adds prestige or allied interests to the cap table.

"There's two different types of co investing. There's private equity funds co investing with 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."
— Scott Becker [00:25]

2. Benefits of Co-Investing (For Funds and LPs)

• For Funds:

  • Access to bigger or more deals by sharing the equity and risk.
  • Ability to bring in desirable names or strategic partners on the cap table.
  • Ready access to additional capital facilitates smoother deal closes.

• For LPs:

  • Opportunity to invest directly in specific deals, leveraging the fund’s due diligence.
  • Co-investments typically avoid standard management fees and carried interest, making them less expensive than traditional fund investments.

"When a private equity fund lets their LPs invest in deals side by side...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."
— Scott Becker [00:49]

"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...the carry fees and the management fees."
— Scott Becker [01:32]

3. Downsides and Complexities of Co-Investing

• Administrative Complexity:

  • More parties must be coordinated, leading to more complicated processes.
  • Funds have to manage the interests of both the fund’s investors and the separate co-investors in a deal.

• Reduced Economics for Funds:

  • GPs give up management fees and carried interest on the co-invested capital.

• Potential for Loss of Control:

  • Co-investors may have separate voting rights, which can dilute the fund’s control, though often aligned voting agreements are put in place.

"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."
— Scott Becker [02:13]

"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...typically they're not getting that when somebody is co investing in the deal with them."
— Scott Becker [02:29]

"Sometimes it could mean that they're giving up control because their co investors can vote separately than the private equity fund..."
— Scott Becker [02:40]

4. Personal Experience as an LP and Co-Investor

• Scott often preferred investing in funds over direct co-investments for simplicity and portfolio management reasons.
• He valued co-investing when he trusted the management team and had confidence in their investment capabilities.
• Noted that co-investments for LPs are rarely large enough to be “economically huge risks,” but also not meaningful enough to shift the portfolio significantly.

"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 organized, it keeps my life less complex and so forth."
— Scott Becker [01:55]

"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..."
— Scott Becker [03:11]

Notable Quotes & Memorable Moments

• On Why Some LPs Like Co-Investing:

  "As a co investor, it's sometimes because someone would like us to be involved on the cap table as well."
  — Scott Becker [01:22]

• On the Risk/Reward Balance of Co-Invests:

  "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...economically huge risks. The flip side is I wasn't making deep enough investments to really make a difference in my portfolio either."
  — Scott Becker [03:25]

Timestamps for Key Segments

• 00:25 — The two primary types of co-investing in private equity
• 00:49 — Benefits of co-investing for funds and LPs
• 01:32 — Fee advantages for LPs in co-investments
• 01:55 — Simplicity and organization: why Scott prefers fund investments
• 02:13 — Complications for PE funds in managing co-investors
• 02:29 — Economic drawbacks for funds (fees and carried interest)
• 02:40 — Control and voting issues with co-investments
• 03:11 — Scott’s preferred circumstances for co-investing
• 03:25 — Scale of co-investments vs. overall portfolio impact

Conclusion

Scott Becker offers a nuanced perspective on co-investing within private equity, highlighting both its strategic advantages and inherent complexities for both funds and LPs. Ultimately, while co-investing provides flexibility, fee benefits, and partnership opportunities, it also introduces administrative burdens and organizational challenges—leading Scott to often favor the simplicity and consistency of traditional fund investments.

"There's a lot of different thoughts on co investing and investing. I hope you find this useful."
— Scott Becker [03:40]