Author: Kevin Schmid

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Allocating to private equity can provide institutional investors an opportunity to improve the risk-adjusted return of a broad institutional portfolio. As with any asset class, investors should seek to construct a diversified portfolio to mitigate the risk of any single investment; diversification is particularly pertinent to private equity, where individual private equity funds can be relatively concentrated in terms of number of investments, sector or geographic exposure.

However, diversification in private equity can be difficult, time-consuming and expensive. Common approaches include investing in a "fund-of-funds" vehicle or building a portfolio of single-fund exposures. Another method is investing in a "co-investment fund," which offers a cost-effective way for investors to gain access to a wide range of private equity fund sponsors.

In this paper, we will explain what co-investment funds are, the structural advantages of co-investing, the current market dynamics that are proving favorable to such investments and the potential risks to consider.

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