What Is Co-Investing and Why Do Family Offices Like It?

Co-investing is when a family office invests alongside another investor or group in a specific opportunity. Families use it to add exposure to a deal, draw on partners' experience, and participate without taking on the entire investment alone. It can also give a family more control over where some of its capital goes than a conventional fund commitment may provide.

Why Families Participate

In my experience, family offices often look for direct deals, club deals, and co-investment opportunities because they want to make investment decisions more internally and manage some investments outside third-party funds. A co-investment can be a way to invest alongside a fund manager or another sponsor when the family sees a particular opportunity it wants to pursue. The amount can vary widely, so the structure should fit the family and the transaction and account for the deal's size, capital needs, and terms.

Co-investing can also combine capabilities. A partner may bring industry knowledge, operating experience, or relationships that help with the investment, development, or eventual sale. The family may bring capital, its own expertise, or a useful network. This is one reason families may prefer a collaborative deal over working alone. For the basics of the broader category, see why family offices prefer direct investments.

Choose Partners Before Committing

The partners matter as much as the opportunity. Look for people whose investment approach, operating policies, time horizon, and exit expectations are compatible with yours. A partner should add value at a stage where that contribution matters. Conflicts of interest, mismatched terms, and different expectations can create problems that are hard to resolve after capital is committed.

More participants can mean more competing views and a harder path to agreement. Decide who has authority over key matters, how costs and responsibilities are shared, and how the group will respond if the plan changes. Document the arrangement before closing, with formal deal documents suited to the vehicle and transaction. Talk with your attorney and CPA about legal and tax specifics.

Do the Work Together

Another party's presence does not replace due diligence. Review the underlying business or asset, the proposed terms, and the sponsor's ability to execute. Check references from people who have worked with the partner in different capacities, including business associates and vendors where relevant. Agree on how information will be shared and who will monitor the investment after closing.

Co-investing can be rewarding, but it also brings the emotional demands of staying aligned through difficult periods. Before proceeding, be clear about what each participant contributes, how decisions get made, and what happens when participants disagree. Families exploring their first shared deal can also review how family offices source direct deals and how they structure private company investments. For deals involving a sponsor, checking a deal sponsor's background is part of protecting the process.

Family offices are often looking for deal flow, co- investment opportunities, club deals, and direct deals, and I expect this trend to only strengthen in coming years.

Sources: The Single Family Office. Informational only, not financial, legal or tax advice.