Co investing has become an increasingly attractive strategy for investors to gain more investment opportunities and benefits. By co investing with fund managers or other investors, investors can get access to quality deals with lower fees and build deeper relationships. However, co investing also requires more expertise, due diligence and involvement. This article will analyze the definition, pros and cons, approaches and risk management of co investing strategy, with the goal of providing a comprehensive understanding of this alternative investment approach.
Co investing provides opportunities to invest alongside fund managers
The main advantage of co investing is that it allows investors to invest directly alongside experienced fund managers in the assets the managers invest in. This provides investors opportunities to participate in potentially profitable investments identified by top fund managers. With the expertise and experiences of fund managers, co-investors can gain quality deal flows.
Co investing enables investors to build closer relationships
By working closely with fund managers in evaluating and managing investments, co-investors can develop deeper relationships with them. This allows co-investors to better understand fund managers’ investment strategies and strengths. The closer relationships also put co-investors in a favorable position to obtain more co-investment opportunities in the future.
Lower fees is a key benefit of co investing
Co investing can significantly reduce the fees investors pay compared to sole fund investment. By investing directly alongside funds, co-investors can avoid paying the high management and performance fees charged by the funds. The lower fees lead to improved net returns for co-investors.
Co investing requires more expertise and due diligence
While co investing provides more investment opportunities, it also requires investors to have the expertise to conduct proper due diligence and evaluate potential deals. Co-investors need capabilities to assess deals independently rather than relying on fund managers’ decisions. Extensive due diligence is crucial to avoid adverse selection of investments.
Higher involvement in deal management is needed in co investing
In addition to evaluating deals, co-investors also need to be substantially involved in deal structure and post-investment management. Unlike sole fund investment, co-investors participate directly in important decisions with fund managers regarding the investments. The higher involvement also demands investors to have the necessary operational resources.
Co investing provides opportunities to invest alongside experienced fund managers and build closer relationships. Key benefits include access to quality deals, lower fees and improved net returns. However, co investing requires investors to have sufficient expertise for due diligence and deal management. With proper risk management, co investing can be an effective approach to gain investment opportunities.