An LP co-investment is a limited partner’s direct investment in a single deal, made alongside the main fund rather than through its regular fund commitment. The general partner usually runs the co-investment through its own SPV, sized to fund the portion of the deal the main fund could not take on its own because of a concentration limit or a check size the fund’s capital could not fill.
Co-investments give LPs more direct exposure to deals they like, often at reduced fees, and give GPs a way to write a bigger check on a strong deal without breaching the fund’s own diversification rules. This guide covers how the mechanics work, why fees usually differ from the main fund, and where co-investments run into their own legal limits.
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Why GPs offer co-investment opportunities
Most fund limited partnership agreements cap how much of the fund’s committed capital can go into a single company, often to keep the fund diversified across many bets. When a strong deal calls for a check larger than that cap allows, the general partner can raise the extra amount through a separate co-investment SPV, inviting existing LPs, or sometimes new investors, to fund the gap directly (for background on how LPs relate to a private fund generally, see Understanding Limited Partners in Private Equity). The main fund still takes its allowed share; the SPV takes the rest.
How the SPV structure works
A co-investment SPV is a single-purpose entity that buys stock or units in the target company, exactly like any other SPV. Investors sign subscription documents, fund a capital call, and later receive a K-1 and their share of any distribution when the company exits. See Who Can Invest Into SPVs? for how eligibility rules apply to a vehicle like this one.
Because a co-investment SPV pools money from more than one investor, it needs its own exclusion from the Investment Company Act of 1940, most commonly under Section 3(c)(1), which caps the vehicle at 100 beneficial owners. A sponsor running several co-investment SPVs off the same deal flow should track owner counts across related vehicles, not just within one SPV.
Fees and carry on a co-investment
Co-investment terms vary by sponsor and by deal. Some general partners waive management fees, carried interest, or both on a co-investment SPV, treating it as a benefit for LPs who support the main fund. Others charge a reduced fee and carry schedule rather than waiving it outright. There is no standard answer, so LPs should read the co-investment SPV’s own subscription documents rather than assume the main fund’s terms carry over automatically.
Some LPs negotiate a right to see co-investment opportunities in a side letter when they first commit to the fund, rather than relying on the general partner’s discretion each time a deal comes up. A side letter right typically guarantees notice and a fair chance to participate, not a guaranteed allocation, since the general partner still decides how much of any single co-investment goes to each interested LP.
| Main fund commitment | Co-investment SPV | |
|---|---|---|
| Deal selection | Fund makes every allocation decision | Investor chooses whether to join this one deal |
| Fees and carry | Set once, in the fund’s LPA | Negotiated deal by deal, often reduced |
| Concentration | Limited by the fund’s own diversification rules | Not limited by the main fund’s cap |
| Timing | Capital called across the fund’s life | One capital call for one deal |
How LPs get access to co-investment deal flow
Access is usually a byproduct of the main fund relationship. Larger or longer-tenured LPs often see more co-investment opportunities, since sponsors tend to offer them first to investors who have shown they can move quickly on a short capital call timeline. An LP that wants more co-investment access should say so directly to the general partner rather than wait to be asked, since sponsors are not obligated to offer any specific opportunity to any specific LP unless a side letter says otherwise. For more on how individual deal exposure compares with fund investing, see Navigating Individual Deal Investments.
A worked example
Suppose a fund’s LPA caps any single investment at 10% of committed capital, and a $50 million fund wants to put $8 million into one company, which is within the cap. The company later offers the fund a chance to invest $8 million more, which would push the position to 32% of the fund, well past the limit. The general partner instead raises the extra $8 million through a co-investment SPV, inviting fund LPs to participate directly. Investors who join the SPV now hold two separate positions: their share of the fund’s original $8 million, and their SPV interest in the additional $8 million, each governed by its own document. These figures are hypothetical and used only to illustrate the mechanics.
Risks specific to co-investing
- Concentration risk is higher than in the diversified main fund, since the co-investment SPV holds one company only.
- Timelines are often compressed, with a short window to review documents and fund a capital call before the deal closes.
- Information may be limited compared with what the general partner itself sees, since LPs are not always given the same diligence access.
- Fund documents may treat a co-investment SPV as a related party for certain reporting or conflict disclosure purposes, so sponsors running several vehicles off one deal should keep the paperwork for each one clearly separated.
Frequently asked questions
What is an LP co-investment?
It is a direct investment by a limited partner into a single deal, alongside the main fund’s own investment, usually made through a separate SPV the general partner sets up for that purpose.
Why do LPs like co-investments?
Co-investments let an LP put more capital into a deal it already believes in, often on better fee terms than the main fund, and give the LP more direct exposure to a specific outcome rather than only the fund’s blended result.
Do co-investments have fees?
Sometimes. Terms differ by sponsor: some co-investment SPVs waive management fees and carry entirely, others charge a reduced schedule, and a few mirror the main fund’s terms. Check the co-investment SPV’s own documents.
Can new investors join a co-investment SPV, or only existing fund LPs?
It depends on the sponsor. Many co-investment opportunities go first to existing fund LPs, but some sponsors also invite outside investors who meet the SPV’s own eligibility requirements.
Is a co-investment SPV riskier than the main fund?
Generally yes, in the sense that it holds one company rather than a diversified portfolio, so a single bad outcome affects the co-investment SPV far more than it affects the main fund. LPs should treat a co-investment decision as its own underwriting exercise, not an extension of their trust in the fund overall.
Running co-investment SPVs on Syndicately
Syndicately forms and administers the SPV behind a co-investment opportunity: subscription documents with e-signature, rolling capital calls, cap tables, and investor updates once the deal is funded. Your fund counsel structures the fee and carry terms for each co-investment; the platform handles the onboarding and paperwork so LPs can fund quickly on a tight deal timeline. Book a demo to see it in action.
This article is general information, not legal, tax, or investment advice. Co-investment terms and the securities exemptions available to a specific SPV depend on the facts of the deal, so speak with fund counsel before offering or accepting one.
