Levering Up for Co-Invest: Good or Bad Idea?
Seeking some advice and guidance here to see if I'm making a terrible mistake or a big-brain financial move. At my current firm I am able to participate in a co-invest program as an Associate and envision myself staying with the firm for the next few years.
Our current Fund is returning 2.5x+ Net MoMs and 25%+ Net IRRs with a long track record of delivering consistent, top quartile returns. On a fee and carry-free basis this is even higher. This is not a flex, just indicating that I am 90% confident that my Firm will continue to deliver similar returns over the next 10 years. Loss ratios are also extremely low and I am 99% confident that I would not lose any money (outside of the time value of having it locked up for at least 5 years).
Under my current co-investment program I have no limits to the amount that I can co-invest and believe this is the best place to park my money and have it locked up for the next ~5 years. Therefore, does it make sense for me to leverage myself and dump in as much money as possible into this program? My current firm extends leverage but I am thinking of taking on additional loans to increase my commitment (under our current program we contribute $XX of each $M that is invested). With rising interest rates I recognize this might be a bad idea so another alternative would be pulling from my future inheritance and investing this instead? If I can get my parents comfortable would it make sense to take $300K of future inheritance and dump it in my Fund? I do not plan to purchase a home or make any other major purchases in the near future that would require access to liquidity now. I currently have ~$200K co-invested right now.
Someone please tell me why this is a terrible financial idea (if so) outside of the usual risk factors (Fund could do poorly, market volatility, etc.).