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Private equity co-investment funds – a comparison of risks and returns

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Private equity co-investment funds present a number of attractive performance and risk characteristics. This empirical study explores their outperformance and risk mitigation versus single-manager primary private equity funds.

Outperformance is probably attributable to a co-investment fund’s lower overall costs, the manager’s selection skills, and two levels of due diligence on each transaction (the manager and lead sponsor). Downside protection results from enhanced portfolio diversification across geography, sector, industry, vintage year and lead investors/sponsor.

Through our analysis of a Preqin dataset spanning almost two decades, we illustrate the potentially substantial benefits of including co-investment funds as part of a well-balanced portfolio of private equity funds.

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