Co-investments are often presented primarily as a fee story. Having built co-investment programmes on the LP side, we see it differently: fees are part of the rationale, but rarely the main reason.
For institutional investors, the real question is not whether co-investments look attractive on paper. It is whether they can consistently access, assess and execute investments on terms that justify the resources and risks involved – and which route best fits their organisation.
The answer matters for LPs deciding how to build exposure, and for GPs looking to position co-investments as part of their fundraising with Nordic institutions.
The Economics Are Only Part of the Story
The headline case is well understood: reduced or no management fees and carry, capital deployed directly into companies, and the potential for a shorter J-curve.
These benefits are real, but they only count if the underlying investments perform. A fee saving is poor compensation for a weak investment. The discussion should therefore start with investment capability and access, rather than cost.
What Direct Co-Investing Requires
Direct co-investing places three significant demands on an LP:
Speed. A team capable of underwriting investments in weeks rather than months. Transaction timelines are set by the deal, not by the LP’s internal calendar.
Risk capacity. The ability to manage concentration risk. A handful of single-company positions behaves very differently from a diversified fund commitment.
Deal flow. Access to enough opportunities to remain genuinely selective. An investor with limited deal flow risks becoming dependent on the opportunities presented rather than choosing those best suited to its portfolio.
Most LPs do not have all three in place.
The Adverse Selection Challenge
The third point deserves particular attention. Are you seeing the GP’s best opportunities, or the deals they need to syndicate?
Not every syndicated deal is a weaker investment. But LPs need sufficient visibility into the GP’s allocation process, underwriting standards and investment rationale to assess opportunities independently.
Without a broader view of the market, this can be difficult. It is one of the central challenges in co-investing – and one that lower fees do nothing to solve.
Where Dedicated Co-Investment Funds Fit
This is where dedicated co-investment funds can offer a compelling alternative.
Diversification. Exposure across a broader range of companies, GPs, sectors and vintages, rather than a handful of concentrated positions.
Selectivity at scale. Established platforms can screen a broad range of opportunities and invest selectively, drawing on dedicated sourcing networks and investment processes to help address adverse selection.
Resource efficiency. Access to individual company investments without building the internal infrastructure required to source, underwrite and execute each transaction.
Portfolio construction. A complementary allocation alongside primary fund commitments, providing more targeted exposure to underlying companies while potentially reducing overall portfolio costs.
Putting the Fee Layer in Perspective
A dedicated fund does introduce an additional fee layer compared with investing directly. That is a fair objection, but it often rests on the wrong comparison.
For many LPs, the relevant choice is not direct investing versus a dedicated fund. It is access through a diversified co-investment platform versus no co-investment exposure at all.
The appropriate comparison should consider not only fees, but also diversification, access, investment selection and the resources required to build and maintain an internal capability.
What This Means for GPs
Co-investment can be a valuable part of a fundraising conversation with Nordic institutions, but it needs to be presented with the same rigour as the main fund.
Three points are worth preparing for:
Be clear on allocation. Experienced LPs will ask how co-investment opportunities are allocated and who gets to see them. A general statement of intent carries little weight.
Be ready for adverse selection questions. Expect LPs to ask why an investment is being syndicated, and be prepared to explain how co-investments have historically sat alongside the main fund.
Know which LP you are talking to. Some investors have the team and resources to underwrite directly and quickly. Others need a longer lead time or prefer to access co-investments through a dedicated vehicle. The same offering will land very differently with each.
Build, Access or Both
There is no single right answer. The appropriate route depends on team, ticket size, deal access and how co-investments fit into the wider portfolio. Many investors will ultimately combine direct investing with access through dedicated platforms.
At Nordiq Partners, our perspective is informed by 12 years of LP-side experience in illiquid investments, including establishing a USD 800m co-investment programme with TIAA while at a major Danish pension fund.
We believe the most effective co-investment strategies start with a clear understanding of the investor’s capabilities, objectives and portfolio needs.
If you are an LP considering how to build co-investment exposure, or a GP exploring how to approach Nordic institutional investors, we would be happy to exchange perspectives.
