Key Takeaways
- • Committed-capital co-investment funds raised a record $47.3 billion in 2025, demonstrating strong LP appetite despite management fees and carried interest charges, contrary to the traditional "fee-free" co-investment model.
- • A significant portion of the co-investment market now accepts fee-bearing structures, with over two-thirds of survey respondents charging some form of management fee or organizational/setup fee, challenging the historical expectation of no-fee co-investments.
- • Committed-capital co-investment funds mitigate the "double-fee problem" inherent in traditional funds-of-funds structures by allowing investments on a fee-free or fee-light basis at the deal level alongside lead sponsors, making the overall fee structure more palatable to LPs.
- • Most private equity managers discount fees and carried interest by 25-50 percent on co-investments for negotiating LPs, though fee flexibility remains primarily available to mega-LPs and sophisticated investors with significant capital.
- • LPs are increasingly negotiating protective covenants to prevent no-fee co-investments from being dragged into continuation funds, addressing concerns that favorable deal-level economics could be undermined by fund-level fees.
Summary
The co-investment market is experiencing a fundamental shift in fee dynamics, with a growing segment of limited partners willing to accept management fees and carried interest on co-investment vehicles, departing from the historical market norm of fee-free structures. According to PitchBook data, committed-capital co-investment funds raised $47.3 billion last year—a record—despite charging investors management fees and carried interest alongside traditional fund economics. This development signals that a substantial portion of the LP community no longer views fee-bearing co-investments as an absolute violation of value-preservation principles.
The market segmentation reflects divergent LP preferences and negotiating power. While mega-LPs like CalPERS have historically championed fee-free co-investing as essential to lowering overall private equity costs, survey data reveals that over two-thirds of current co-investment vehicles impose some form of management fee or organizational setup fee. Standard market practice allows most managers to offer 25-50 percent discounts on fees and carried interest for co-investments, creating a middle ground between traditional no-fee structures and full-price fund offerings. However, such discounts remain largely accessible only to larger, more sophisticated institutional investors with meaningful committed capital.
Rami Turayhi of Milbank LLP, quoted in PitchBook's analysis, highlighted a structural advantage of committed-capital co-investment funds: they typically permit deal-level investments on a fee-free or fee-light basis alongside lead sponsors, thereby reducing the compounding fee burden that characterizes traditional funds-of-funds vehicles. This framework addresses a primary LP concern regarding fee multiplication while still allowing the sponsor to monetize the co-investment vehicle itself at the fund level.
Concurrently, LPs are implementing contractual protections against unintended fee exposure, increasingly requiring provisions that prevent their low-fee or no-fee co-investments from being transferred into continuation funds where additional fees would apply. These negotiated safeguards underscore LP recognition that favorable deal-level economics can be eroded through subsequent fund-level structures, necessitating explicit protective covenants in committed-capital arrangements.
The market segmentation reflects divergent LP preferences and negotiating power. While mega-LPs like CalPERS have historically championed fee-free co-investing as essential to lowering overall private equity costs, survey data reveals that over two-thirds of current co-investment vehicles impose some form of management fee or organizational setup fee. Standard market practice allows most managers to offer 25-50 percent discounts on fees and carried interest for co-investments, creating a middle ground between traditional no-fee structures and full-price fund offerings. However, such discounts remain largely accessible only to larger, more sophisticated institutional investors with meaningful committed capital.
Rami Turayhi of Milbank LLP, quoted in PitchBook's analysis, highlighted a structural advantage of committed-capital co-investment funds: they typically permit deal-level investments on a fee-free or fee-light basis alongside lead sponsors, thereby reducing the compounding fee burden that characterizes traditional funds-of-funds vehicles. This framework addresses a primary LP concern regarding fee multiplication while still allowing the sponsor to monetize the co-investment vehicle itself at the fund level.
Concurrently, LPs are implementing contractual protections against unintended fee exposure, increasingly requiring provisions that prevent their low-fee or no-fee co-investments from being transferred into continuation funds where additional fees would apply. These negotiated safeguards underscore LP recognition that favorable deal-level economics can be eroded through subsequent fund-level structures, necessitating explicit protective covenants in committed-capital arrangements.
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