Co-investment, done well, is a small group of long-tenured operating partners committing capital alongside each other on a deal-by-deal basis, each on their own balance sheet, with no pooling vehicle and no fund-style economics in between. Done badly, it is a fund pretending to be a partnership, with all of the disadvantages of both. The structural choice matters more than most parties realise at the outset.
The direct model has three advantages. Decisions are made by the people whose capital is committed, not delegated to a manager. The economics are clean — each party’s return is exactly its share of the underlying asset, with no carry, no management fee, no hurdle. And the holding period is set by the asset, not by any pooled-vehicle clock. The result is alignment that compounds over multiple deals, and a depth of relationship that pooled structures find hard to reproduce.
The disadvantages are real but manageable. Direct co-investment requires more legal work per deal — the operating agreement, governance, exit mechanics all bespoke rather than templated. It requires every party to have the operating bench to make the decision rather than outsourcing it to a manager. And it requires trust — measured in years of prior relationship — that compensates for the absence of a fund’s institutional structure.
The model fails when the parties try to graft fund-style mechanics onto a direct structure: a “lead investor” who takes carry on others’ capital, a “management fee” that pays for capacity that the parties already have, or a delegation of decision rights to a single party that defeats the alignment the structure was supposed to produce. If you want fund-style economics, raise a fund; if you want partnership-style alignment, keep it direct.
Kaelo Investments’ co-investment work is direct, deal-by-deal, on each side’s own balance sheet. There is no pooling vehicle. Where a single-transaction SPV is used for legal structuring, it does not change the bilateral economics. The partnerships are with a small group of long-tenured operating counterparties — a number we keep small on purpose. See Regulatory Disclosures.