PE co-investments hit record $198bn as institutions seek greater control

## Institutional Co-Investments Reach Record Highs Amid Shifting Private Equity Landscape

Private equity co-investments more than doubled in value year-on-year to a record $198bn in the first half of 2026, according to a report by the Financial Times, citing figures from S&P Global Market Intelligence. This growth reflects investor demand for lower fees, greater control over capital deployment, and additional exposure to individual companies, as private equity firms continue to face challenges generating liquidity through portfolio company exits.

Co-investments allow institutional investors to participate directly in transactions alongside private equity sponsors, typically with reduced or no management fees and carried interest. Traditional private equity funds commonly charge a 2% management fee and 20% of investment profits, making co-investments an attractive way to reduce costs and potentially improve net returns. The Pennsylvania Public School Employees’ Retirement System, which manages $86bn, estimates that its co-investments have outperformed its wider private equity portfolio by approximately five to six percentage points, largely due to savings on fees and carried interest.

Several large institutional investors are actively expanding their co-investment strategies. North Carolina’s $150bn retirement system is also increasing its allocation to the strategy. The North Carolina Investment Authority invested $200m in artificial intelligence company Anthropic alongside Baillie Gifford earlier this year. The investment could deliver a fivefold return if Anthropic eventually lists at a $2tn valuation. The authority has also invested in continuation vehicles involving US natural gas producer Ascent Resources, with its latest investment, made in March, marked up by around 20% over the following six months. North Carolina state treasurer Brad Briner said co-investments would account for approximately half of the authority’s planned private equity deployment in future. The Alaska Permanent Fund Corporation, which manages $89bn, deploys up to a third of its annual private equity allocation through co-investments, according to deputy chief investment officer Allen Waldrop.

From the private equity firms' perspective, offering co-investment opportunities can be a strategic move. It allows them to strengthen relationships with existing investors and secure additional capital for transactions that might exceed their fund capacities. Partners Capital’s head of co-investments, Jennifer Fox Bensimon, said more opportunities were emerging from a smaller pool of private equity deals.

However, co-investments carry risks and do not consistently outperform traditional private equity portfolios. The California Public Employees’ Retirement System reported that its co-investments had underperformed its broader private equity holdings in most periods over the three decades to 2022, before the trend reversed during the subsequent three years. Investors also face concerns about adverse selection, whereby private equity managers could offer co-investors less attractive opportunities than those retained within their own funds. Nat Fraser, a partner at Cerity Partners, said assessing why a particular transaction was being offered to outside investors was a central part of the investment process.

This trend signals a maturation of the private equity landscape, with institutional investors demanding greater transparency, control, and cost efficiency. The increased adoption of co-investments suggests a long-term shift towards more customized and direct investment approaches, potentially reshaping the traditional fund model and fostering more direct partnerships between limited partners and general partners.