managing-co-investment-processes

# Managing Co Investment Processes

## When To Use

- GP identifies a deal where the equity check exceeds fund concentration limits or reserved co-invest capacity exists
- LP requests or standing co-investment program requires formal offering documentation
- Structuring co-invest vehicle terms (SPV, sidecar, or direct) for a specific transaction
- Tracking allocation decisions, acceptance/decline status, and funding timelines across multiple LPs
- Preparing post-closing co-investment reporting or reconciling co-invest economics with the main fund

## Inputs To Gather

- **Deal details**: target company name, sector, transaction type (buyout, growth, venture), total enterprise value, equity check size, and anticipated close date
- **Fund parameters**: fund co-investment policy, concentration limits, GP commit percentage, carry/fee structure on co-invest
- **LP eligibility list**: LPs with co-investment rights (contractual or discretionary), historical participation rates, minimum/maximum ticket sizes, and any MFN or priority provisions from side letters
- **Term parameters**: management fee (if any), carried interest, hurdle rate, GP clawback, expense pass-through, and any reduced economics for co-investors
- **Vehicle structure**: SPV formation jurisdiction, tax blocker needs, parallel fund considerations, and regulatory constraints (ERISA, BHCA, foreign investment restrictions) [VERIFY]
- **Timeline**: offering notice deadline, election period, funding date, and any regulatory filing windows

## Workflow

1. **Screen the deal for co-invest eligibility**
   - Confirm the investment exceeds fund allocation policy thresholds or that discretionary co-invest capacity exists
   - Check LPA provisions for GP discretion on co-investment offerings and any LP consent requirements
   - Identify conflicts of interest (e.g., offering to affiliated vehicles, GP principal co-invest vs. LP co-invest)

2. **Determine allocation methodology**
   - Apply contractual co-invest rights first (side letter commitments, MFN beneficiaries)
   - For discretionary allocations, apply the fund's stated methodology: pro rata to commitments, rotational, strategic relationship-based, or speed-of-response
   - Document the rationale for each allocation decision, including any LPs passed over and why

3. **Structure the co-invest vehicle and terms**
   - Select vehicle type: direct investment alongside the fund, SPV/sidecar with single-asset economics, or blocker structure for tax-exempt/foreign investors [VERIFY jurisdiction-specific entity choices]
   - Set economic terms: no-fee/no-carry, reduced fee/carry, or full economics — note deviation from main fund terms
   - Draft or adapt co-investment agreement, subscription documents, and side letter provisions
   - Address governance: board seats, information rights, transfer restrictions, tag/drag provisions, and follow-on rights

4. **Execute LP communication and offering**
   - Distribute co-investment opportunity notice with deal summary, term sheet, allocation amount, and election deadline
   - Include confidentiality reminder and material non-public information (MNPI) acknowledgment
   - Track LP responses: accept, decline, request modification, or no response
   - Handle oversubscription or undersubscription — reallocate per methodology and document adjustments

5. **Manage funding and closing**
   - Issue capital call notices with wire instructions and funding deadlines
   - Coordinate with legal counsel on closing conditions, regulatory approvals, and signing mechanics
   - Confirm receipt of funds and execute closing documents
   - Update the fund's cap table and LP portal with co-investment positions

6. **Post-closing administration and reporting**
   - Provide co-investors with closing confirmation, final allocation amounts, and vehicle formation documents
   - Establish ongoing reporting cadence: quarterly NAV statements, annual audited financials, K-1s or equivalent tax documents [VERIFY based on vehicle jurisdiction]
   - Track co-investment performance separately from main fund for attribution and track record reporting
   - Monitor follow-on investment rights and pro rata participation obligations

## Output

- **Co-Investment Offering Memo**: deal summary, investment thesis excerpt, allocation rationale, and term sheet
- **Allocation Schedule**: LP-by-LP table showing eligibility basis, offered amount, accepted amount, and status
- **Term Summary**: side-by-side comparison of main fund terms vs. co-invest vehicle terms (fees, carry, governance)
- **LP Communication Log**: timestamped record of notices sent, responses received, and follow-up actions
- **Funding Tracker**: capital call amounts, wire confirmation status, and outstanding balances by LP
- **Post-Closing Summary**: final cap table for co-invest vehicle, total co-invest as percentage of deal equity, and reporting obligations

## Quality Checks

- Verify all contractual co-investment rights from side letters are honored before discretionary allocations
- Confirm allocation methodology is consistently applied and deviations are documented with rationale
- Ensure co-invest vehicle terms do not inadvertently create MFN triggers for other LPs in the main fund
- Cross-check total co-invest commitments plus fund commitment against total equity check — no over-allocation
- Validate that MNPI handling procedures are followed in all LP communications
- Confirm regulatory considerations are addressed: ERISA plan asset rules, BHCA thresholds for bank-affiliated LPs, CFIUS implications for foreign co-investors [VERIFY applicable regulations]
- Ensure tax structure is reviewed for pass-through treatment, withholding obligations, and blocker entity requirements [VERIFY with tax counsel]