How Institutions Use Co-Investments Without Letting Concentration Drift?
Carta's tender-offer data gives useful context for the scale of later-stage private-company liquidity transactions. Later-stage transactions can support institutional check sizes and targeted company exposure. A co-investment allocation can be built around a repeatable check size rather than assembled opportunistically deal by deal.
Carta reported a median tender size of $27.6 million for Series C or later companies in the first half of 2025.
Lower Fees Do Not Remove Concentration Risk
Co-investments can lower blended fees and increase exposure to selected companies, but they can also make the portfolio far more concentrated than the fund commitments suggest. The institution should set company, sponsor, sector, stage, and vintage limits before opportunities arrive. Lower fees improve an investment only when the company and price are good.
| Exposure | How it grows | What to measure |
|---|---|---|
| Company | Direct cheque plus look-through fund ownership | Total value in the same company |
| Sponsor | Fund commitment plus several co-investments | All capital tied to the manager group |
| Sector | Opportunities arrive from the same market theme | Direct and fund-level sector exposure |
| Vintage | Many deals close during one active market | Entry-year value and unfunded needs |
Allocation Often Arrives Unevenly
The institution may receive large offers in deals where the sponsor needs more capital and small offers in the most competitive companies. That does not make every large allocation poor, but it makes selection reasons important. LPs should ask why the allocation is available, how much the sponsor is investing, and whether terms match the lead fund.
A co-investment allocation should be a maximum pool, not a quota. If the year offers few good deals, capital can remain unspent. Pressure to meet an annual target can turn fee savings into weak selection.
- Company limit: Include all look-through exposure.
- Sponsor limit: Combine funds, SPVs, and co-investments.
- Independent review: Form a company view beyond the sponsor memo.
- Decide whether more capital is available.
- Use all vehicle expenses and carry.
Co-investments are most useful as selective additions to a diversified fund programme. They should add conviction, not quietly replace diversification.
Combine Lower Fees With a Portfolio Plan
Translate the co-investment allocation into dollars. In a $100 million venture portfolio, 0%, 10%, and 30% co-investment allocations equal $0, $10 million, and $30 million respectively.
The calculation shows why. A $30 million co-investment allocation written in $10 million checks creates only 3 company positions. That can reduce fees while increasing company-specific concentration, especially when later-stage private liquidity events can be much larger than one check; Carta reported a $27.6 million median Series C-or-later tender size in the first half of 2025.
One company can drive a concentrated co-investment allocation. In a three-company $30 million allocation, one $10 million position returning 3.0x produces $30 million and can return the allocation's original capital before outcomes from the other two companies. The same concentration makes review consequential.
article-visual:co-investment-allocation-lower-fee-portfolio-risk-allocationA $100 million venture portfolio with 0%, 10%, and 30% co-investment exposure has $0, $10 million, and $30 million allocated to co-investments.
A Planned Co-Investment Allocation
A set co-investment allocation can lower fees, but the portfolio still needs enough companies and clear selection rules.
View co-investment allocation data
| Co-investment allocation | Dollars in $100M portfolio | At $10M per position | Place in the portfolio |
|---|---|---|---|
| 0% | $0M | 0 positions | Fund-led portfolio. |
| 10% | $10M | 1 position | One co-investment position. |
| 30% | $30M | 3 positions | Planned company-selection allocation. |
Set Limits Before the Deal Arrives
Access is only valuable when it is assessed. A specific company, sponsor relationship, or secondary discount is useful because it lets the investor ask better questions before committing capital. Structure should make the exposure cleaner. The vehicle should clarify fees, reporting, transfer limits, follow-on process, and economics.
Each co-investment may look reasonable on its own. Drift appears when several deals share the same sponsor, company, sector, financing round, or exit market. A series of small approvals can create one large economic position without any committee ever approving that total exposure. The portfolio report should therefore group co-investments with the related fund commitments and any other vehicles holding the same company. It should also show how much additional capital may be required if several companies raise again.
Limits work best before allocation arrives. Once a popular deal is offered with a short deadline, the pressure to participate can overpower a general concentration policy. A pre-agreed company and sponsor limit makes the decision faster and clearer.
Frequently Asked Questions
Can co-investments improve net returns?
They can: Lower fees and a focused investment may improve net results when company selection, pricing, rights, and position sizing are strong.
What should LPs confirm before accepting an allocation?
Start with alignment and fit: Understand why the allocation is available, what the sponsor is retaining, which rights come with the security, and how the position fits the wider portfolio.
Related Reading
private technology co-investments, co-investment vs fund investment, and adverse-selection risk.