Equity co-investment

An equity co-investment (or co-investment) is a minority investment, made directly into an operating company, alongside a financial sponsor or other private equity investor, in a leveraged buyout, recapitalization or growth capital transaction. In certain circumstances, venture capital firms may also seek co-investors.

Diagram of the structure of an equity co-investment in a portfolio company alongside a financial sponsor

Private equity firms seek co-investors for several reasons. Most important of these is that co-investments allow a manager to make larger investments without either dedicating too much of the fund's capital to a single transaction (i.e., exposure issues) or sharing the deal with competing private equity firms. Co-investors bring a friendly source of capital.

Typically, co-investors are existing limited partners in an investment fund managed by the lead financial sponsor in a transaction. Unlike the investment fund however, co-investments are made outside of the existing fund and as such co-investors rarely pay management fees or carried interest on an individual investment. Co-investments are typically passive, non-controlling investments, as the private equity firm or firms involved will exercise control and perform monitoring functions. For large private equity fund of funds and other investors, co-investments are a means of increasing exposure to attractive transactions and making investments that have a higher return potential because of the lower economics paid to the general partner. As a result, many private equity firms offer co-investments to their largest and most important investors as an incentive to invest in future funds.

See also

References


Wikimedia Foundation. 2010.

Look at other dictionaries:

  • Equity Unit Investment Trust — A registered trust in which investors purchase units from a fixed portfolio of equities, which are chosen and managed by a professional money manager. Securities in the trust remain there for the life of the trust, which is most often one year.… …   Investment dictionary

  • Equity-Linked Security - ELKS — A hybrid debt instrument that is linked to the equity markets. Equity linked securities can be in the form of a single stock, a group of stocks or an equity based index, such as the S P 500. The return on investment is dependent upon the… …   Investment dictionary

  • Equity Style Box — A visual representation of the principle investment characteristics of stocks and stock mutual funds. The style box was created by Morningstar and is a valuable tool for investors to use to determine the risk return structures of their… …   Investment dictionary

  • Equity — 1. A stock or any other security representing an ownership interest. 2. On a company s balance sheet, the amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses). Also referred to as shareholders… …   Investment dictionary

  • Equity Method — An accounting technique used by firms to assess the profits earned by their investments in other companies. The firm reports the income earned on the investment on its income statement and the reported value is based on the firm s share of the… …   Investment dictionary

  • Equity Takeout — Taking money out of a property to use for a variety of purposes. Equity takeout allows homeowners to tap into the equity of their home. When an equity takeover is done on your home, the principal on the value of the mortgage will increase, if… …   Investment dictionary

  • Equity Swap — An exchange of cash flows between two parties that allows each party to diversify its income, while still holding its original assets. The two sets of nominally equal cash flows are exchanged as per the terms of the swap, which may involve an… …   Investment dictionary

  • Equity Participation — Ownership of shares in a company or property. Equity participation may involve the purchase of shares through options or by allowing partial ownership in exchange for financing. The greater the equity participation rate, the higher the percentage …   Investment dictionary

  • Equity Risk Premium — The excess return that an individual stock or the overall stock market provides over a risk free rate. This excess return compensates investors for taking on the relatively higher risk of the equity market. The size of the premium will vary as… …   Investment dictionary

  • Equity Derivative — A derivative instrument with underlying assets based on equity securities. An equity derivative s value will fluctuate with changes in its underlying asset s equity, which is usually measured by share price. Investors can use equity derivatives… …   Investment dictionary


Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.