Key Takeaways
- • Co-investment funds raised a record $47.3 billion in 2025, the highest annual total on record, driven by sustained LP demand even as broader private equity fundraising has struggled, according to PitchBook's Q1 2026 Global Private Market Fundraising Report.
- • Unlike traditional direct co-investments structured on a no-fee, no-carry basis, these dedicated co-investment funds charge management fees and carried interest, signaling a structural shift in how GPs and LPs approach co-investment vehicles.
- • A material segment of the LP base has concluded that the fee-free co-investment model—historically championed by mega-LPs—does not align with their investment strategy or return requirements, creating willingness to pay fees for dedicated access.
- • California State Teachers' Retirement System (CalSTRS) demonstrated the historical value of fee-free structures, reporting over $550 million in savings through its Collaborative Model as of 2024, establishing a proven benchmark for cost reduction.
- • GPs are increasingly dedicating resources to committed co-investment vehicles with fee structures, capitalizing on market demand disparities where co-investment appetite remains robust relative to broader PE fundraising headwinds, according to Weil partner Cassie Kimmelman.
Summary
The co-investment market is experiencing a fundamental realignment in fee structures. Co-investment funds raised $47.3 billion in 2025—the highest annual total on record—demonstrating robust LP appetite for these vehicles despite headwinds affecting broader private equity fundraising and dealmaking. However, this capital influx masks a strategic divergence within the LP base regarding fee tolerance.
Traditionally, co-investments were structured as direct investments on a no-fee, no-carry basis, allowing limited partners to offset the elevated management fees and carried interest embedded in flagship PE funds. This model appealed particularly to megafunds and institutional investors with sufficient scale to negotiate favorable terms. CalSTRS exemplified this approach, reporting cumulative savings exceeding $550 million through its Collaborative Model, which combines co-investments, internally managed assets, and separately managed accounts to reduce overall cost of capital.
Yet the record fundraising for dedicated co-investment funds—vehicles that charge both management fees and carried interest—indicates a substantial cohort of LPs no longer views the fee-free model as critical to their strategy. Cassie Kimmelman, a partner in Weil's private funds practice, attributed this shift to market dynamics: "We're seeing sponsors dedicate resources to committed co-investment vehicles where there's more demand and, therefore, they can ask for fees and carry because of the way the market is going." This reflects sponsor recognition that constrained PE fundraising has intensified competition for co-investment access, allowing GPs to monetize dedicated vehicles through traditional fee structures.
The divergence suggests that while fee-free co-investments remain strategically important for capital-rich institutional investors managing fee drag at scale, a growing segment of the LP universe has decided that direct access to co-investment opportunities—regardless of fee burden—delivers sufficient value relative to exclusion from deals. This recalibration underscores a maturation in co-investment market dynamics where vehicle structure is becoming negotiable based on investor profile and return objectives rather than treated as a universal mandate.
Traditionally, co-investments were structured as direct investments on a no-fee, no-carry basis, allowing limited partners to offset the elevated management fees and carried interest embedded in flagship PE funds. This model appealed particularly to megafunds and institutional investors with sufficient scale to negotiate favorable terms. CalSTRS exemplified this approach, reporting cumulative savings exceeding $550 million through its Collaborative Model, which combines co-investments, internally managed assets, and separately managed accounts to reduce overall cost of capital.
Yet the record fundraising for dedicated co-investment funds—vehicles that charge both management fees and carried interest—indicates a substantial cohort of LPs no longer views the fee-free model as critical to their strategy. Cassie Kimmelman, a partner in Weil's private funds practice, attributed this shift to market dynamics: "We're seeing sponsors dedicate resources to committed co-investment vehicles where there's more demand and, therefore, they can ask for fees and carry because of the way the market is going." This reflects sponsor recognition that constrained PE fundraising has intensified competition for co-investment access, allowing GPs to monetize dedicated vehicles through traditional fee structures.
The divergence suggests that while fee-free co-investments remain strategically important for capital-rich institutional investors managing fee drag at scale, a growing segment of the LP universe has decided that direct access to co-investment opportunities—regardless of fee burden—delivers sufficient value relative to exclusion from deals. This recalibration underscores a maturation in co-investment market dynamics where vehicle structure is becoming negotiable based on investor profile and return objectives rather than treated as a universal mandate.
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