Clarifying the Misconceptions of Co-Investing

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In the evolving investment landscape, co-investing stands out as an effective way to gain exposure to private equity, offering investors a potential pathway to enhanced returns and diversified portfolios. Yet, despite its many attractive qualities, co-investing is frequently misunderstood, making its true potential not always immediately apparent. At GCM Grosvenor, we are dedicated to illuminating the value of co-investing and guiding investors toward a clearer understanding of this strategy and its potential benefits.

Misconception #1
Co-investment Deal Volume is Down

Contrary to the broader private equity market, which has seen a decline in deal volume year over year, activity for co-investors has held up and is expected to grow this year. Fewer participants providing co-invest equity, combined with higher percentages of equity needed in deals today versus a few years ago, have provided active co-investors ample opportunities. Through our expansive sponsor network, our team consistently uncovers high-quality deals across a broad array of sectors and geographies.

Misconception #2
Co-investment is Reserved for Large Investors Only

Gone are the days when co-investing was exclusive to major institutional investors. Today, the playing field is more inclusive, with innovative structures and platforms catering to investors of all sizes. By championing accessibility through creative solutions, astute asset managers can help investors with varied scales and capabilities to participate in co-investment opportunities alongside their larger counterparts.

For example, commingled vehicles can offer a seamless gateway to co-investing opportunities, providing investors with easy access to diversified portfolios and eliminating the complexities often associated with direct investment, making it a turnkey solution.

Misconception #3
Co-investing Dilutes Returns

Far from dilution, co-investing can enhance potential returns when approached strategically with appropriate portfolio construction. Many investors like the lower fees offered by co-investments compared to primary fund investing, and when pursued through a well-diversified portfolio, these lower fees can translate into potentially higher net returns. Strong deal flow creates diversification across many metrics and is critical to ensuring proper risk management in seeking to generate excess returns¹.

We believe co-investing in 2024 offers a bright horizon of possibility for investors willing to embrace its potential in what should be a more active deal market than 2023. By clarifying misconceptions and embracing the facts, investors can seek to utilize co-investments to enhance returns and diversify their portfolios.

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Important Disclosures

For illustrative and discussion purposes only. No assurance can be given that any investment will achieve its objectives or avoid losses. The information and opinions expressed are as of the date set forth therein and may not be updated to reflect new information.

Investments in alternatives are speculative and involve substantial risk, including strategy risks, manager risks, market risks, and structural/ operational risks, and may result in the possible loss of your entire investment. The views expressed are for informational purposes only and are not intended to serve as a forecast, a guarantee of future results, investment recommendations, or an offer to buy or sell securities by GCM Grosvenor. All expressions of opinion are subject to change without notice in reaction to shifting market, economic, or political conditions. The investment strategies mentioned are not personalized to your financial circumstances or investment objectives, and differences in account size, the timing of transactions, and market conditions prevailing at the time of investment may lead to different results. Certain information included herein may have been provided by parties not affiliated with GCM Grosvenor. GCM Grosvenor has not independently verified such information and makes no representation or warranty as to its accuracy or completeness.