How much to co-invest?

Wanted to get some advice from anyone that has co-invested in their PEG's funds over the years. Would be great to hear from folks that invested before the recession especially.

This is my first time making an illiquid investment and want to get a reality check from people that have been in the same seat before me. Really trying to nail down how to think about the allocation compared to my other investments.

Current state of my finances:
25 y/o; $100K+ that is in S&P 500 ETFs (split 50-50 between 401k and brokerage). $10K+ liquid to cover 3-4 months of expenses. $10K+ of cash equivalents as a hedge against current asset prices.

Points of concern I have:
i) is this too many eggs in one basket? If Fund V blows up, I'm out my investment, 50% of my annual comp (bonus) and a job (salary). Not sure how many PE funds closed up during the last recession, but I would think that this time we'll see an equal or greater reduction in headcount.
ii) I'm confident in the company, but at the end of the day I am locking up money for a while when we are at (what some would call the end) of a ~10 year bull market in PE. Asset prices are relatively high right now. Would it be wiser to buy $1k of ETFs every 2 weeks than dumping $25k into one private company?

How should I think about this? Is there a reasonable "range" to keep in mind that I should move in depending on my confidence level in an investment?

Comments (25)

Sep 4, 2019 - 3:08pm

So many variables to unpack here.

IMO investing is all about what kind of risk you can tolerate and what works well with your specific personality.

Personally, I'd go all in if you feel good about it and you're in a position to materially impact performance with the caveat that historic performance is strong/beating public markets significantly.

Maybe keeping 15% - 20% in a boring ETF/S&P500/etc...

Sep 5, 2019 - 4:29pm

I understand that it's entirely personal, but what are some things that I should consider? I'm looking for considerations specific to this investment (not just general concerns when making investments like liquidity).


Sep 5, 2019 - 4:42pm

If you are participating in the upside, my thought is to have a little skin in the game as possible. Our investors require our partners to put a substantial amount of their own capital in play for alignment purposes in order to reap the rewards at the end. They bitch about this non-stop and would put no money up if they had the option. Your real compensation in the deal is going to be your bonus; any return on your co-invest will be dwarfed by that (hopefully).

Most Helpful
Sep 6, 2019 - 2:35pm

At my firm it was a requirement for everyone participating in carry (which I think is pretty standard). The amount was around 1 year of salary. Obviously most associates don't have that much liquid, so they took half of this year and next year's bonus and put it into the fund.

It is unlikely that you will be with the firm for the entire life of the fund through wind down, so you should definitely understand what happens when/if you leave - do you get paid out at par? Are you just along for the ride with other LPs? Do you have the option to pick? Etc.

To address your specific questions:

(i) PE firms don't really blow up like HF's do (that is, they're here today and gone tomorrow). It's more of a long, slow death for bad firms, so you'll have some lead time and it's not like one day you're fine, and then the next, you are out a job and your investment.

(ii) The bull market isn't just in the PE world. Public equities are also rich by historical standards, so aren't you just trading one poison for another? Yes, there are nuances (PE has timing constraints, public market investments don't; also leverage), but in general, I think you're still kinda trading premium valuations in one context for premium valuations in another.

Jan 5, 2021 - 10:41pm

Forgot to thank you for the great response. Really happy with the decision I made and appreciate the advice from you and the other posters. 


  • 1
  • Prospect in IB - Gen
Jan 6, 2021 - 8:38pm

Could you elaborate on this? Was this with leverage?

In retrospect, were there warning signals you should've seen? Or you think it was the right decision to invest but it just didn't work out?

  • Associate 1 in PE - LBOs
Jan 7, 2021 - 11:11am

Would really appreciate context here too as I need to decide how much to invest in a few days. Would be very helpful to know how your fund performed historically too and what type of fund it is (size, strategy, geo etc.)?

Thanks a lot

  • VP in CB
Jan 7, 2021 - 11:13am


What is your fund's return track record? That would influence my decision personally in deciding to allocate to coinvest vs. other asset classes I can access on my own. To illustrate my fund hasn't had a vintage return less than 3x net of fees, so I am aggressively allocating to them outside of 2020 when I thought public equities were massively discounted.

Jan 8, 2021 - 10:41am

Will keep it short and discreet.

1. Firm with 5+ funds - solid UMM

2. No signs at the time of the investment 

Fund did a ton of new investments during my time after not doing many deals for a year or two preceding - so it was more of a concentration / "momentum" issue and it turned out a few of those investments were not as well baked as they could have been. This resulted in a few quick wipeouts while none of the other investments have been home-runs (although doing fine). Hence the quick capital loss... although it may ultimately shake back up to near par as the other investments continue to mature (but obviously will be a huge opportunity cost over the past few year).  

Jan 8, 2021 - 12:37pm

Apologies in advance if this not completely on topic but I think it is.  Just going to share what happens at my firm.

I am an Operating Partner (been with the firm 5 years, came from industry) at a MM buyout fund.   Our firm is different in that only people on the investment committee are part of Co-Invest.  So, this means no Associates or VPs or Operating Partners can co- invest.  This initially pissed me off.  I am relatively senior guy, extensive experience in medium and large companies, ran a $200m business unit, was also a senior guy at a Fortune 20 company (Managed a global team of 2000 people in more than 20 countries).   Safe to say I have a lot business experience and investing experience.   

However, my annoyance quickly waned when I learned that my firm had a separate partnership that allows us to invest deal by deal directly in portfolio companies at time of acquisition.  The cap of investment per company is pretty low but I was able to petition to get my limit increased.  After 4 years  I now have investments in more than 30 portfolio companies.  What is great is that if I don't believe strongly in the deal/thesis then I minimize my investment and if I think it is a home run then I max it out.

It is a way better deal than those people required to Co-Invest at the fund level.

Jan 8, 2021 - 1:41pm

Hey. Again, this is completely off topic. 


I noticed you mentioned you were an operating partner at a MM fund. Firstly, I am applying for internships in the portfolio groups/operating groups of a number of large funds. What are the key skills you look for in junior candidates at your firm? Is there a large emphasis on financial modelling and financial knowledge, or what are the key things you look for? What are the tasks that a junior team member does as part of the operating group on a day-to-day/week-to-week basis?


Also, I know this isn't something I should be asking, but you mentioned you don't get any co-invest opportunities as an operating partner. Do you operating partners get carry in the fund similar to investment professionals? Or is there a very large difference in pay between investment professionals and operating professionals? 



Jan 8, 2021 - 2:16pm

I'll let him answer with his structure, but at my fund the operating partners don't get carry but do get options for every deal they work on (and typically a base + bonus as well).


This ends up working out similarly via shared deal upside, but rather than get a given percentage of every deal they get a larger percentage but only on deals they work on. We also do allow (and encourage) co-invest, so as with most things in this world it can vary by fund (though it sounds like he does get co-invest at the deal level)

Jan 8, 2021 - 3:15pm

Hey, happy to answer questions about Ops Partner items.   My firm's operating team does not have any junior roles.   Everyone on the team came from either 10+ of MBB consulting or from middle or senior management (COO/CFO/CRO) in portfolio companies, with several decades of experience.  To put that in perspective, the youngest person on the team is 40ish years old.  However, if we did have junior roles, I would look for someone with 5-10 years of experience working in operating companies, ability to develop relationships with executives (not the relationship a PE associate develops with the CFO when he haggles him over the monthly reporting package - but real ability to gain their trust), and a very real desire to work at the front-line manager level in the portfolio company on operational challenges.  The types of projects are very diverse but some examples for a junior guy would be…

A)    Helping them pick and implement a new ERP

B)    Creating individual sales rep quota and funnel

C)    Writing operational docs associated with field operations procedures.

There is NO emphasis for Ops Partner to have financial modeling skills.  However, we all do need to have a good working knowledge of FP&A so we know how to figure out what operating levers are going to work on performance improvement (Revenue and EBITDA growth) and magnitude of the impact.  Think of the finance skills of a finance focused CEO or COO.

To answer your question about Carry - as you know Operating Partners are not real firm's just a title.   However, we do get very significant carry. Carry level is on par with a Principal or even a newly minted partner (but certainly not at the level of more established partner).  Candidly - I would never had left industry where I led very large teams tackling tough challenges for the company around the world if the comp package did not have the massive upside of very substantial Carry. 

  • Associate 2 in PE - LBOs
Jan 9, 2021 - 11:06pm

Rule of thumb I was given at my firm is you'll have about 50-60% of your commitment called, so commit 2x what you're thinking. Thought process is it's not all called at once, and you'll start to realize a few investments before the fund is all invested. That's based on the past few funds we had. You'll also be building up a lot more savings over the next 4 years, so don't be afraid of the initial sticker shock.

Jan 18, 2021 - 12:54pm

Slightly off-topic question here, but I am curious to solicit feedback from the individuals in this thread - does anyone fund their co investment commitments with tax advantaged (IRA or 401(k)) dollars? My preliminary desktop research has led me to believe that this IS an option but wanted to gather firsthand perspectives.


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