Key Takeaways
- • San Mateo County pension is evaluating the addition of a co-investment program, with a proposed commitment of $120 million over the next decade to improve private equity asset class performance.
- • CalPERS analysis projects that each $1 billion in co-investments generates approximately $400 million in savings on management fees and carry charges over the life of investments, creating a direct economic incentive for program adoption.
- • Co-investment structures provide institutional investors with lower fees, enhanced deal control, and flexible funding mechanisms compared to traditional fund-of-funds arrangements with general partners.
- • The co-investment strategy addresses cost efficiency in private equity allocations while maintaining performance objectives for pension benefit obligations.
Summary
San Mateo County's pension fund is actively evaluating the establishment of a co-investment program as a mechanism to enhance returns from its private equity portfolio. The pension fund is considering a $120 million commitment to co-investments over a ten-year period, with an initial $10 million allocation, according to publisher materials from the Buyouts reporting network.
The primary motivation driving this strategic review centers on performance improvement within the private equity asset class. Co-investment vehicles allow pension funds to participate directly in individual deals alongside general partners, rather than investing exclusively through fund-of-funds structures that typically include higher management fees and carried interest charges.
CalPERS' co-investment analysis provides quantifiable evidence of the fee economics underlying the strategy. The California Public Employees' Retirement System projects that each $1 billion deployed in co-investments generates approximately $400 million in cumulative savings on management fees and carry over the full investment lifecycle. This fee reduction directly improves net-of-fees returns to beneficiaries, addressing a critical performance metric for defined benefit obligations.
Beyond fee reduction, co-investment programs offer institutional investors greater operational control over individual investments and more flexible deal participation mechanisms. These structural advantages allow pension funds to negotiate better terms with general partners while maintaining portfolio diversification across the alternative asset class. For San Mateo County and similar regional pension plans, the co-investment model represents a cost-effective alternative to passive fund allocations while preserving meaningful exposure to private equity return streams essential for long-term funding sustainability.
The primary motivation driving this strategic review centers on performance improvement within the private equity asset class. Co-investment vehicles allow pension funds to participate directly in individual deals alongside general partners, rather than investing exclusively through fund-of-funds structures that typically include higher management fees and carried interest charges.
CalPERS' co-investment analysis provides quantifiable evidence of the fee economics underlying the strategy. The California Public Employees' Retirement System projects that each $1 billion deployed in co-investments generates approximately $400 million in cumulative savings on management fees and carry over the full investment lifecycle. This fee reduction directly improves net-of-fees returns to beneficiaries, addressing a critical performance metric for defined benefit obligations.
Beyond fee reduction, co-investment programs offer institutional investors greater operational control over individual investments and more flexible deal participation mechanisms. These structural advantages allow pension funds to negotiate better terms with general partners while maintaining portfolio diversification across the alternative asset class. For San Mateo County and similar regional pension plans, the co-investment model represents a cost-effective alternative to passive fund allocations while preserving meaningful exposure to private equity return streams essential for long-term funding sustainability.
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