Management fees on co-investments are, on average, half of those paid on a regular private equity fund commitment, according to research from alternative assets consultancy MJ Hudson.
Co-investment fees range from 0 to 1 percent, compared with the 2 percent which dominates across private equity funds during the investment period, the data show.
Carry charges on co-investments range from 0 to 10 percent, the research also found. This compares with the average 20 percent seen on regular investments.
“While many GPs are charging management fees and taking carry on co-investments, many influential LPs are negotiating advantageous co-investment economic rights in side letters,” MJ Hudson said.
The report said LP appetite for co-investment has increased year on year, and with it demand for greater certainty on how co-investments are allocated. GPs, on the other hand, are usually trying to resist the formalisation of co-investment terms in the limited partnership agreement and are using side letters to determine co-investment allocation.
The data were drawn from MJ Hudson LP Unit’s review of key economic terms across a representative sample of private equity funds that came to market in the 12 months from April 2016.