Co-investment secondaries become a real market as fundraising splits

Private-market fundraising fell about 17 percent last year. Co-investment fundraising rose more than 17 percent. The total came to roughly $27 billion, according to Jefferies. The bank reads that divergence as the clearest evidence yet that co-investments have moved from novelty to core allocation, and that a genuine secondary market for those positions is opening.

The broad decline is not the only trend moving. Private-equity fundraising fell for a second straight year, Secondaries Daily has reported. Co-investment money going the other way at a double-digit rate, Jefferies argues, points to a change in how allocators want access to sponsor deal flow.

Co-investment is how LPs cut the cost of running a private-equity program. They put money directly into a sponsor's deal alongside the main fund, usually at sharply reduced economics, often with no fees or carry. The LP pays less and sits inside the manager's highest-conviction names. The GP gains a way to reward large, loyal backers and to write bigger equity checks.

The money now sits in the same liquidity squeeze as the rest of the industry. Exits have slowed, holding periods stretched. Managers of co-investment funds need to return money and raise successor vehicles. Large allocators who planned to hold these positions to maturity are now starting to sell.

Until recently that was almost impossible. A co-investment stake is concentrated in a handful of companies, operationally unique, and widely considered unsaleable at scale. The standard move was to sell ordinary fund interests and leave co-investments alone. Buyers would not underwrite concentrated single-company exposure. A basket of two or three dozen direct positions was no better.

The shape of co-investment books kept them off the secondary market. A fund interest is a diversified pool with a set valuation protocol; a co-investment is a handful of direct positions, each with its own entry price and company story. In practice, that made every potential trade a bespoke negotiation, with no broad auction to clear it.

Jefferies says three forces converged to change that quickly. The result is a two-sided market. A pension or sovereign wealth fund can now sell part of its direct and co-investment holdings — something it would never have attempted before — and recycle the proceeds into new commitments. On the other side, buyers get lower-cost exposure to attractive companies, frequently newer-vintage positions with meaningful upside, at entry points that did not exist a year ago. The report argues this is not just a backstop for sellers; both sides can come out ahead.

The discipline is the same as in any secondaries deal: sponsor quality, portfolio breadth, runway remaining. The difference is what gets underwritten. In a traditional LP-led sale, the buyer takes a diversified pool of fund interests. In a co-investment trade, it is underwriting the manager's company selection, concentrated down to a handful of holdings.

What has changed is the assumption that co-investment books cannot be traded. Jefferies says landmark deals are already clearing, and calls the market a repeatable solution, not a one-off. A reliable exit route could also feed the primary market: a co-investment allocation is easier to commit to when it is not automatically a hold-to-maturity asset.

The broader secondary market provides the backdrop. Secondaries globally absorbed a record $93 billion last year, per Secondaries Daily's coverage. Co-investment is a small piece of that, but the piece most directly tied to concentrated, single-sponsor exposure.

The $27 billion raised last year is a returning supply of co-investment capital. Some of it will stay in funds; a portion is likely to end up in the secondary market as managers recycle and allocators rebalance.