Co-Investing: Maximizing Returns In Private Equity

Interest in private market investments continues to grow as they promise higher risk-adjusted returns and lower volatility compared to public markets. But private market funds have their challenges with issues like the J-curve, multi-year commitment periods, illiquidity, etc. This article discusses the J-curve and strategies to improve returns.

Sep 8, 2022|General- 1 min

What is the J-Curve?

The J-curve refers to the negative returns in primary closed-end private market funds during their early years. This occurs because capital invested gradually over several years may not generate enough returns in the early years to cover the fees charged by the fund manager as shown in the chart below.

Source: Corporate Finance Institute

Building a Portfolio of Private Market Funds

One strategy to achieve a flatter J-Curve is to build a portfolio of private market funds over time. The J-curves of the funds would be relatively uncorrelated. Thus, the returns from funds that are more fully invested would reduce the J-curve of the newer funds.


Another strategy to reduce the depth and length of the J-curve in a private market investment is through co-investment.

Source: Corporate Finance Institute

Co-investments are made alongside a private market fund manager and provide the benefit of ownership without the high fees associated with a private market fund. Private fund managers offer co-investments to their larger investors to achieve greater control over their investments with the larger capital, and to reduce underwriting risk. Investors benefit from faster capital deployment that generate returns earlier to mitigate the J-curve. Simulations by BlackRock showed that a co-investment allocation of 20% to 30% can shorten the J-curve by 12 to 18 months.

Private Market Investment with The Family Office

Since 2004, The Family Office has helped clients invest in the best opportunities across private markets while navigating the challenges associated with this asset class. In 2022, the company launched a state-of-the-art digital platform that allows investors to simulate the performance of their portfolios and take control of their investments. Sign up to our digital investment platform or call us today to start investing in private markets.

About The Family Office

Since 2004, The Family Office has been the wealth manager of choice for more than 200 ultra-high-net worth families and individuals, helping them preserve and growth their wealth through customized solutions in diversified alternatives and more. Schedule a call with our financial experts and learn more about our wealth management process.

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