Institutional investors are increasingly investing directly in companies alongside private equity managers, with co-investments gaining ground as an alternative to committing capital through traditional funds, according to a report by the Financial Times.
The report cites figures from S&P Global Market Intelligence as showing that the value of private equity co-investment deals more than doubled year-on-year to a record $198bn in the first half of 2026.
The 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. Overall private equity fundraising rose 5% to $312bn in the first six months of the year, although volumes remained below their 2021 peak.
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.
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, reflecting a significant increase in the strategy’s role within its portfolio.
Other institutional investors are using co-investments to target specific sectors and regions while retaining greater control over investment timing. 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. The approach enables it to increase exposure to areas such as energy and financial services without waiting for traditional fund commitments to be deployed.
The expansion also reflects changing dynamics within the private equity industry. With fundraising conditions challenging, particularly for smaller managers, co-investment opportunities can help firms strengthen relationships with existing investors and secure additional capital for transactions that exceed the capacity of their funds. 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.
A further challenge is the level of expertise required to assess deals. Some public pension plans may lack the resources and transaction experience needed to evaluate opportunities on an equal footing with private equity sponsors. The compressed timetable for co-investments can add to the pressure, with investors sometimes required to complete due diligence and secure investment committee approval within days.
