TLDR:
Co-investment refers to when a limited partner invests directly alongside a fund in a specific deal, typically on more favorable terms (reduced or no fees/carry), providing additional capital for larger transactions.
Co-Investment Programs
Many institutional LPs — particularly large pension funds, sovereign wealth funds, and endowments — negotiate co-investment rights as part of their LP agreements, allowing them to invest directly alongside the VC or PE fund in specific portfolio companies. Co-investments typically come at reduced or zero management fees and no carry, making them significantly more economical than paying full fund economics. This is why co-investment programs are increasingly used by large LPs to improve their overall fee drag.
For VC funds, co-investment programs help manage fund concentration limits while allowing the firm to support portfolio company growth more aggressively. However, co-investment introduces complexity: the GP must decide which LPs get co-investment access, manage information barriers, and handle governance situations where co-investors may have different economic interests than the fund. Well-designed co-investment programs include clear allocation policies, information rights aligned with fund LPA terms, and decision-making protocols.