# Co-investment: The operational playbook for fund CFOs ### Author: The Carta Team ### Read time: 11 minutes ### Published date: 17 September 2025 Co-investment is a minority investment alongside a private equity or venture capital fund, offering transparency, control and potential higher returns. ## What is a co-investment? A co-investment is a minority investment made directly into a [portfolio company](/content/sg/en/learn/private-funds/structures/portfolio-company/index.html) by a fund’s [limited partners (LP)](/content/sg/en/learn/private-funds/structures/limited-partner/index.html), one of the key [types of investors](/content/sg/en/learn/startups/fundraising/investors/index.html) in the private markets. This investment happens alongside the main [private equity](/content/sg/en/learn/private-funds/private-equity/index.html) or [venture capital fund](/content/sg/en/learn/private-funds/venture-capital/index.html), but is separate from it. Think of it as an exclusive opportunity for select investors to increase their stake in a specific deal that the [general partner (GP)](/content/sg/en/learn/private-funds/structures/general-partner/index.html) has already sourced and vetted as part of their [deal flow process](/content/sg/en/learn/private-funds/management/deal-flow/index.html). For your finance team, each co-investment operates like one of many miniature [private funds](/content/sg/en/learn/private-funds/index.html). It has its own group of investors, its own unique economics, and its own cycle of reporting and [compliance obligations](/content/sg/en/learn/private-funds/regulations/compliance/index.html). This structure runs in parallel to the primary fund, creating a distinct set of operational tasks that require careful [management](/content/sg/en/learn/private-funds/management/index.html). Unlike investing in a traditional blind-pool fund, where LPs commit capital without knowing the specific future investments, a co-investment offers complete transparency. The co-investor knows exactly which company their money is going into from the very beginning. This level of specificity is a key part of its appeal. GPs increasingly offer special incentives to their most strategic LPs to reward contributions that extend beyond a simple capital commitment. Common incentives include: - **Co-investment rights:** Allowing select LPs to invest directly into portfolio companies alongside the fund, often with reduced or no fees and carried interest. - **Fee reductions:** Offering lower management fees or a more favorable carried interest structure. - **GP-stakes:** Granting LPs a share of the GP's own economics. Ultimately, these arrangements are powerful tools for both capital formation and long-term [investor relations](/content/sg/en/learn/private-funds/management/investor-relations/index.html). ## How are co-investments structured? To maintain clean books and records and to isolate risk, co-investment capital is never commingled with the main fund’s assets. This separation is achieved through the incorporation of a completely separate legal entity that is created for the sole purpose of making that single investment. This legal separation is critical from both an accounting and a legal standpoint, ensuring that the liabilities of one investment cannot affect the assets of another. The most common legal structure used to facilitate a co-investment is an [SPV](/content/sg/en/learn/private-funds/structures/spv/index.html). Many LPs and independent sponsors create [bespoke pools of capital](/content/sg/en/data/spv-spotlight-private-equity-2024/index.html) to invest alongside a private equity fund, using SPVs to gain more visibility and autonomy than they would in a traditional fund structure. This structure simplifies the administrative overhead for the portfolio company receiving the investment. The process of forming an SPV can be handled in two very different ways: - **The traditional method:** Engaging law firms to draft bespoke legal documents and manually setting up a new bank account. - **A modern platform approach:** Using integrated software to streamline the entire workflow. ## Why GPs and LPs pursue co-investments Co-investments create a symbiotic relationship that benefits both the [fund manager](/content/sg/en/learn/private-funds/structures/fund-manager/index.html) and the investor. For GPs, co-investments offer several strategic advantages: - Access to a friendly and efficient source of capital to pursue larger deals. - A powerful tool for building deeper, more strategic relationships with key LPs. - A strong signal of confidence to the market and to the LPs. For LPs, the appeal of co-investing is just as strong: - Targeted exposure to a specific company or industry. - The potential for enhanced returns. - A closer look at the GP’s investment process. ## Managing co-investment economics and fees The unique financial structure of co-investments often features significantly reduced fees. For instance, many SPVs operate without management fees. Key components include: - **Management fees:** These are waived because the GP is already compensated through the main fund. - **Carried interest:** Waiving this means more upside goes directly to the co-investors. ## How to manage conflicts of interest and allocation Co-investments can create potential conflicts of interest. Managers must be diligent in managing potential conflicts to ensure fairness among all investors. Important considerations include: - The process for deciding which LPs are offered the chance to co-invest. - Clarity around who is responsible for expenses if a deal falls through. - Equitable terms of an exit. ## Understanding key co-investor rights Common rights negotiated by co-investors include [tag-along and drag-along rights](/content/sg/en/learn/private-funds/management/drag-along-rights/index.html): - **Tag-along rights:** Protect minority investors in a sale. - **Drag-along rights:** Allow majority shareholders to proceed with a sale despite minority objections. ## The interplay with continuation funds Continuation funds have become increasingly complex as funds look for liquidity options. Administering these transactions imposes significant operational demands: tracking individual elections, processing distributions, and generating legal documentation. ## The operational playbook for co-investments Co-investments require a specialized approach. A centralized system of [venture capital tools](/content/sg/en/solutions/venture-capital/index.html) can manage the entire co-investment lifecycle efficiently. ### Delivering transparency to co-investors It is essential to provide detailed and accurate reporting to co-investors. Automated reporting can relieve administrative burdens. ### Maintaining audit readiness Every SPV typically requires its own annual audit. A centralized platform can make you "audit-ready" from day one, capturing every transaction and document. ## Your partner in fund administration Co-investments are a powerful tool for building LP relationships and executing larger deals. A unified platform of [private equity software](/content/sg/en/solutions/private-equity/index.html) provides the operational backbone needed.