- Usual market practice: **co-investment rights are not automatic for all LPs**. They are typically **granted selectively**, often via **side letters** to anchor or strategic LPs.
- Most managers try to keep co-investment rights **discretionary**, not mandatory, so the GP can allocate based on speed, fit, concentration limits, and conflicts.
- A common approach is:
- offer co-investment mainly for **follow-on rounds**
- offer it first to existing fund LPs, often **pro rata or by relationship**
- use an **SPV** for the co-investment vehicle
- take potential conflicts to the **LPAC** if needed
- Be careful: side-lettered rights add operational burden and should be tracked in a rights matrix.
References:
- https://decilehub.com/base/1-general_questions/2629-if-i-make-an-investment-in-fund-i-with-no-follow-on-reserves-can-i-follow-on-that-investment-in-fund-ii-using-the-pro-rata-rights-from-fund-i
- https://decilehub.com/base/1-general_questions/163617-what-tracking-discipline-keeps-side-letter-preferential-rights-applied-consistently-as-the-lp-base-grows
- Most managers try to keep co-investment rights **discretionary**, not mandatory, so the GP can allocate based on speed, fit, concentration limits, and conflicts.
- A common approach is:
- offer co-investment mainly for **follow-on rounds**
- offer it first to existing fund LPs, often **pro rata or by relationship**
- use an **SPV** for the co-investment vehicle
- take potential conflicts to the **LPAC** if needed
- Be careful: side-lettered rights add operational burden and should be tracked in a rights matrix.
References:
- https://decilehub.com/base/1-general_questions/2629-if-i-make-an-investment-in-fund-i-with-no-follow-on-reserves-can-i-follow-on-that-investment-in-fund-ii-using-the-pro-rata-rights-from-fund-i
- https://decilehub.com/base/1-general_questions/163617-what-tracking-discipline-keeps-side-letter-preferential-rights-applied-consistently-as-the-lp-base-grows