What should an investor verify first?

What percentage of total private-market exposure any single co-investment would represent.

Which documents matter most?

The co-investment's specific terms compared against the diversified AIF's overall portfolio composition.

What is the main downside to test?

Letting a co-investment's lower fee drive an allocation too large for a single-company concentration risk.

How should the final decision be made?

Cap co-investments as a small satellite allocation, never a replacement for a diversified AIF core.

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Co-Investment vs AIF Commitment

Anurag Y1 min read

Understanding the Direct Deal

An AIF commitment provides diversified exposure across many portfolio companies chosen by the manager over time, with fees on the full committed amount. A co-investment provides concentrated exposure to one specific company, typically at lower or no incremental fee, chosen jointly by the investor and the deal opportunity presented.

Reading Rights, Price and Lead-Investor Quality

A co-investment shifts single-company risk onto the investor directly — a strong AIF portfolio can absorb one weak position among fifteen or twenty; a co-investment has no such diversification, and its outcome depends entirely on that one company's trajectory.

Where Deal Underwriting Breaks

The common failure is treating a co-investment's lower fee as automatically making it the better economic choice without accounting for the concentration risk it introduces. Fee savings on a single position are a poor trade if that position fails entirely, something diversified fund exposure is structurally designed to absorb.

Making the Investment Decision

Size co-investments as a satellite allocation alongside a diversified AIF core, not as a replacement for it — cap any single co-investment at a small percentage of total private-market exposure specifically because it lacks the fund's built-in diversification.

A co-investment's fee advantage only matters after concentration risk is properly sized — never let lower fees drive an allocation that's too large for a single-company bet.

Key takeaways

AIF commitments diversify across many companies; co-investments concentrate risk in one specific company.
A strong AIF portfolio absorbs one weak position; a co-investment has no such diversification cushion.
Lower or no fees on a co-investment don't offset the concentration risk it introduces.
Size co-investments as a small satellite allocation alongside a diversified AIF core, not a replacement for it.

More in Co-Investments and Direct Private Deals

Continue with the other chapters in this module.

Co-Investments and Direct Private DealsWhat Is a Co-Investment in Private Markets?A co-investment is a direct stake in a specific portfolio company, offered alongside a fund's own investment in that same deal — the investor holds shares (or units) directly rather than through...Co-Investments and Direct Private DealsCo-Investment vs Direct InvestmentA co-investment rides alongside a fund's own diligence and deal-sourcing, entering on terms shaped by a professional lead investor.Co-Investments and Direct Private DealsWhy Fund Managers Offer Co-InvestmentsFund managers offer co-investments primarily to write a bigger cheque into a deal than their fund's own concentration limits or remaining dry powder allow, while still capturing the full deal for...