Davis Polk partner Luke Eldridge discussed the increasing demand for co-investments and tips to ensure a frictionless co-investment with Private Equity International.

Noting that the co-investment trend is here to stay, Luke said, “As part of their underwriting of any primary fund relationship, LPs increasingly expect sponsors to clearly articulate their approach to co-investments, including their allocation framework and how opportunities will be presented to investors. Sponsors are responding by building the structures they need to facilitate [those requests]. As that happens, co-investment is moving from something that was historically relationship-driven and largely ad hoc to something more formal and programmatic. That will continue to encourage more and more co-investment deployment.”

He pointed out that identifying areas of potential friction upfront is important to ensuring the co-investment process runs smoothly. “There are issues to consider around governance and control,” Luke noted. “Co-investors have different interests and rights than investors in a main fund, so it is important to establish clear parameters around decision-making, information rights and conflicts.”

Discussing how sponsors need to make sure governance structures don’t create unintended conflicts, Luke explained, “Clear allocation policies are essential in terms of which deals get syndicated, which LPs receive co-investment opportunities and how those opportunities are allocated between key stakeholders when demand exceeds supply.”

He also emphasized the importance of GPs understanding the preferences and criteria of each co-investor ahead of time, adding, “That could mean gauging their appetite with respect to sector, geography or size, for example. That can really help GPs identify the right co-investors efficiently, particularly as the number of potential co-investors proliferates.”

“It can also be helpful to come up with a list of pre-agreed diligence requirements in terms of the core information that a co-investor requires,” he said. “That enables GPs to quickly put together a standardized package of reporting and financial information, reducing friction in the diligence process.”

“The art of a successful co-investment,” Private Equity International (October 1, 2026)

Copy link to share post