Key Takeaways
- • Co-investment funds achieved record fundraising of $47.3 billion last year, according to PitchBook data, demonstrating sustained momentum even as broader private equity fundraising has declined.
- • Cambridge Associates is experiencing a significant surge in late-stage venture capital co-investments, mirroring the increases it witnessed in lower middle market co-investments during 2020 and 2021, according to Scott Martin, head of global co-investments.
- • Allocators are increasingly favoring co-investments for three primary reasons: access to lower or fee-free exposure, greater control over individual investments, and portfolio diversification beyond traditional listed and private company vehicles.
- • While NEPC reports relatively consistent demand for co-investments overall, the advisory firm has observed elevated interest in large private technology companies driven largely by artificial intelligence narratives, though leadership characterizes some of this interest as headline-driven FOMO rather than fundamental conviction.
- • Co-investments serve as a strategic mechanism for general partners and limited partners to build long-term relationships, positioning the structure as a "perfect storm" for deepening GP-LP partnerships.
Summary
Co-investment activity is accelerating across the alternative investment landscape, with Cambridge Associates and other major advisors reporting substantial shifts in allocator behavior. According to PitchBook data cited in the primary reporting, co-investment funds achieved record fundraising of $47.3 billion last year—a notable achievement in an environment where private equity fundraising overall has contracted. This divergence underscores a structural shift in how institutional investors approach private market exposure.
Scott Martin, head of global co-investments at Cambridge Associates, characterized the current environment as witnessing "a big spike right now in late-stage venture." This surge parallels the lower middle market co-investment increases Cambridge observed during 2020 and 2021, suggesting a consistent appetite among allocators for direct deal participation. Martin noted that Cambridge's co-investment practice, launched a decade ago, has expanded annually, reflecting the growing legitimacy and scale of this investment channel.
The drivers behind co-investment demand are multifaceted. Allocators seek fee-free or reduced-fee exposure, greater control over individual investment decisions—a contrast to traditional fund structures where general partners retain investment discretion—and portfolio diversification mechanisms beyond conventional listed equities and private company holdings. Josh Beers, head of private equity investments at NEPC (a Hightower-owned advisory firm), noted that while overall co-investment demand has remained relatively consistent, there has been elevated interest in large private technology companies, particularly those positioned around artificial intelligence opportunities. Beers cautioned, however, that some of this enthusiasm reflects headline chasing and fear of missing out rather than deep fundamental analysis.
Martin characterizes co-investments as a "perfect storm" for strengthening general partner and limited partner relationships over extended periods, suggesting that the structural benefits extend beyond fee economics and capital efficiency to encompass relationship durability and strategic alignment. This positioning indicates that advisors view co-investments as a mechanism for long-term value creation beyond individual deal performance.
Scott Martin, head of global co-investments at Cambridge Associates, characterized the current environment as witnessing "a big spike right now in late-stage venture." This surge parallels the lower middle market co-investment increases Cambridge observed during 2020 and 2021, suggesting a consistent appetite among allocators for direct deal participation. Martin noted that Cambridge's co-investment practice, launched a decade ago, has expanded annually, reflecting the growing legitimacy and scale of this investment channel.
The drivers behind co-investment demand are multifaceted. Allocators seek fee-free or reduced-fee exposure, greater control over individual investment decisions—a contrast to traditional fund structures where general partners retain investment discretion—and portfolio diversification mechanisms beyond conventional listed equities and private company holdings. Josh Beers, head of private equity investments at NEPC (a Hightower-owned advisory firm), noted that while overall co-investment demand has remained relatively consistent, there has been elevated interest in large private technology companies, particularly those positioned around artificial intelligence opportunities. Beers cautioned, however, that some of this enthusiasm reflects headline chasing and fear of missing out rather than deep fundamental analysis.
Martin characterizes co-investments as a "perfect storm" for strengthening general partner and limited partner relationships over extended periods, suggesting that the structural benefits extend beyond fee economics and capital efficiency to encompass relationship durability and strategic alignment. This positioning indicates that advisors view co-investments as a mechanism for long-term value creation beyond individual deal performance.
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