A co-investment right lets a limited partner invest directly in one specific portfolio company alongside the main fund, on top of its regular fund commitment, usually through a separate vehicle formed for that single deal.
Funds typically grant the right to LPs above a stated commitment size, on a first-look or pro-rata basis set out in the limited partnership agreement, and because the fund's own capital is limited relative to a large deal — most LPAs cap how much of the fund can go into any single portfolio company — a co-investment right is often how a GP fills the rest of a cheque without over-concentrating the main fund in one position or turning down a deal it likes.
Whether a co-investment carries its own management fee or carried interest on top of the main fund's, and how an allocation is decided when more than one LP wants into the same deal, are both set by the LPA itself rather than by any external convention; some GPs offer co-investments fee-free as a way to compete for anchor commitments, but that is a negotiated choice each fund makes, not a market rate this glossary can quote.
The co-investment vehicle is legally a separate issuer raising money from a small group for one transaction, so that raise needs its own prospectus exemption under National Instrument 45-106 — commonly the same accredited investor tests the main fund relied on, or the minimum-amount-investment exemption in section 2.10, available where the purchaser is not an individual, buys as principal, and puts in at least $150,000 cash into a single issuer of that one deal. That exemption is a natural fit for an institutional LP topping up its fund commitment with a larger direct cheque into one deal, and it does not require the co-investors to establish accredited investor status separately.
A limited partner with a $25,000,000 commitment to Maple Ridge Capital Fund II, LP is offered the right to co-invest up to $10,000,000 directly in the fund's acquisition of a single platform company, alongside the fund's own $40,000,000 cheque — a position that would otherwise have breached the LPA's single-investment concentration limit if the fund had written the whole $50,000,000 itself. The LP invests through a co-investment vehicle relying on the $150,000 minimum-amount exemption, since it buys as principal and well above that floor, and pays no additional management fee on the co-invested amount under this fund's LPA.
See also: Limited partner · Independent sponsor · Dry powder.
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