Why Pension Funds Co-Invest Alongside Private Equity

Summary

The document explains why pension funds and endowments may invest directly alongside private equity or venture capital funds. Co-investment can let an institution increase its exposure to a deal it finds especially attractive beyond its proportional allocation to the fund, potentially raising expected returns without increasing its commitment across the whole portfolio.

It also notes enhanced control as another possible motivation, while presenting greater deal exposure and expected return as the main reasons. The response characterizes co-investing as increasingly prevalent, but supplies no supporting data, examples, or analysis of performance. It does not discuss fees, due diligence, liquidity, concentration risk, or how institutions assess whether a deal merits additional exposure, so the explanation is a concise overview rather than a full evaluation of the strategy.

Key ideas

• Co-investment can give a pension fund more exposure to a selected private equity deal than its fund allocation provides.
• The stated return rationale is to increase exposure to attractive opportunities without increasing commitment to the overall fund.
• Enhanced control is also identified as a potential motivation.
• The document asserts growing use but offers no data to measure the trend or its results.

Tags

# Pension funds co-investing with private equity?


# Pension funds co-investing with private equity?












Not a quant question, but not suited for Money stack exchange... I've heard rumblings of a trend of pension funds co-investing with private equity and was curious as to the reasoning of that strategy and if there really is a known trend.

I would venture a guess that the pension plans seek similar long-term horizons to private equity and that makes them natural partners and the benefit to the pension plan would simply be to not have to invest the entire amount of capital required for the deal.

## Answer by Helin (score 3, accepted)

https://quant.stackexchange.com/a/46072

Yes, this is increasingly prevalent in the endowment/pension world.

The key reasons for doing co-investments are:



- More exposure to attractive deals: If a deal is super attractive, an endowment/pension may want a larger exposure to it than the pro-rated allocation. Coinvestment offers this extra exposure/enhanced expected returns without requiring additional allocation to the overall PE/VC.

There are other reasons, like enhanced control, etc. But the two reasons above are the most important considerations and there's no question that these deals are increasingly popular.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.