Co-investing alongside private equity funds has become increasingly important for institutional investors seeking greater control, reduced fees, and selective deal exposure. Once reserved for the largest investors with direct access to sponsors, co-investing is now becoming more accessible through dedicated co-investment funds. Building on its longstanding experience in private markets through fund-of-funds strategies in private equity, infrastructure, and beyond, Finnish asset manager Evli has launched a co-investment fund called Evli Private Equity Co-Investment Fund I.
Why Co-Investing Works – for All Parties
Co-investments – direct, unlisted equity investments made alongside private equity managers – offer a range of benefits for both private equity managers (GPs) and their investors (LPs). “Private equity managers often invite co-investors to participate in a deal. This allows the manager to tap into additional capital without having to partner with other GPs,” explains Ilja Ripatti, Investment Director of Co-investments in Evli’s Private Assets team. “Private equity managers also use co-investing as a portfolio allocation tool.” For instance, a manager might not want to commit more than 8 percent of a fund to a single deal, with co-investments helping stay within that limit.
“Private equity managers also use co-investing as a portfolio allocation tool.”
Beyond capital needs and portfolio construction, co-investments also serve a strategic relationship-building tool. “Managers increasingly see co-investing as a way to build stronger, more durable relationships with their LPs,” Ripatti adds. “It’s a useful tool to have – both for managing the portfolio and for deepening investor relationships.”
Speaking about the benefits of co-investments from the LP perspective, Ripatti – who previously served as a senior portfolio manager focused on co-investments and direct unlisted equity at Finnish pension insurer Ilmarinen – notes that institutional investors are drawn to co-investing as a way to reduce costs, enhance returns, and gain greater control over their portfolios. “Investors looking to access unlisted companies want to lower their fees and, of course, improve returns. They also want more visibility and control over what they’re actually investing in,” he explains.
“Investors looking to access unlisted companies want to lower their fees and, of course, improve returns. They also want more visibility and control over what they’re actually investing in.”
This growing demand reflects several key advantages. “Lower fees and the potential for higher returns – that’s the first,” Ripatti says. Second is better control over portfolio construction. And third is the ability to manage deployment pace more flexibly. “You can hit the accelerator when opportunities arise, or apply the brakes when needed,” he explains. “Plus, co-investments typically come with fewer unfunded commitments, making portfolio management more predictable and efficient.”
Evli Private Equity Co-Investment Strategy: Focused, Selective, Mid-Market
After years of allocating to private equity via fund-of-funds, Evli has launched a dedicated fund focused exclusively on co-investments alongside private equity managers. “We aim to invest in 15 to 20 co-investments over the next three to four years, with a fund maturity of around ten years – similar to a traditional buyout fund,” says Ripatti. The fund is managed by a dedicated three-person team supported by Evli’s broader private assets platform comprised of 39 people and primarily targets control buyouts. “We are looking at control buyouts, situations where the manager holds a controlling stake in the company and has a tangible value creation plan with multiple levers to enhance value.”
“We aim to invest in profitable, growing, and mature companies operating in resilient sectors and at reasonable valuations,” explains Ripatti, outlining the fund’s investment criteria. “The company should be in an attractive industry, hold a solid market position, and be led by a competent management team.” Valuation discipline is key. “Time and again, we have seen that overpaying – even for high-quality companies – can erode returns and lead to poor outcomes, especially when the typical investment horizon is around five years.”
“We aim to invest in profitable, growing, and mature companies operating in resilient sectors and at reasonable valuations.”
Ripatti and his team place particular emphasis on the strength of the underlying business and the broader industry. “The industry must be attractive. We focus on resilient sectors and companies that are less likely to suffer immediately in a downturn,” he says. “This is especially important in buyout investments, where leverage is often involved. The companies need to be able to withstand economic shocks.” Just as crucial is the fit between the deal and the private equity manager leading it. “The manager should have experience in the sector and ideally, some kind of unique angle or edge in the deal itself,” Ripatti adds.
The fund targets a broad range of enterprise values – from around €100 million to several billion. “The challenge with very large transactions is that they can limit your exit options,” notes Ripatti. In such cases, an IPO may be the only viable route. “We prefer companies with multiple potential exit avenues, which tend to steer us toward the mid to upper mid-market segment. The mid to upper mid-market range is our sweet spot.”
Sourcing: Relationships and Network Depth
Successfully running a co-investment strategy requires robust and reliable deal sourcing channels – typically accessible only to large institutional investors with established relationships in the private equity space. Evli draws on three distinct sourcing channels to identify and access co-investment opportunities.
“Our most natural channel is our existing relationships with private equity managers, developed through our funds-of-funds program, where we’ve made commitments to over 60 funds,” explains Ripatti. “These are managers we know well and have backed for years.” The second channel involves new or prospective managers that Evli has been monitoring and is interested in partnering with. “In the current fundraising environment, many GPs are using co-investment opportunities as a ‘carrot’ to attract LPs to their funds or to incentivize due diligence,” he notes. “This makes it a very good market to be a co-investor.”
“Our most natural channel is our existing relationships with private equity managers, developed through our funds-of-funds program…These are managers we know well and have backed for years.”
Having previously served as a senior portfolio manager focused on co-investments at Ilmarinen, Ripatti brings a well-established personal network to Evli’s sourcing efforts. “I’ve been doing this for over a decade and have built strong relationships with many private equity managers,” he explains. “Co-investments offer a natural way to nurture and deepen those relationships.”
More importantly, allowing Evli – or institutional investors – to co-invest in a deal ahead of making a fund commitment offers a powerful due diligence opportunity. “It’s an excellent way to conduct due diligence on a manager,” says Ripatti. “By looking at a live deal the manager is executing, we gain far deeper insights than we would from just reviewing fund pitchbooks,” he explains. “It’s a highly effective way to assess how a manager thinks, operates, and adds value.”
Broadening Access to Private Equity
Private equity investing is often associated with notable fees for end investors, and co-investing offers a way to access the asset class at a lower cost. “Carried interest is typically around 10 percent for co-investment funds, which is roughly half of what you usually see in traditional private equity funds,” explains Ripatti. Moreover, the underlying co-investments generally do not charge any management fees. “In some cases, there might be transaction-related fees, but overall, compared to a typical private equity fund, co-investing tends to be significantly more cost-efficient – both in terms of ongoing fees and performance-related costs.”
“…overall, compared to a typical private equity fund, co-investing tends to be significantly more cost-efficient – both in terms of ongoing fees and performance-related costs.”
Given the vast opportunity set in the unlisted space – illustrated by the fact that only about 13 percent of U.S. companies with revenues over $100 million are publicly listed – co-investing offers an efficient way to gain access to this otherwise hard-to-reach segment. Evli’s Private Equity Co-Investment Fund is designed to open the door for smaller investors who may lack the internal expertise or resources to independently execute such transactions. “It’s quite resource-intensive to do this well,” notes Ripatti. “Even some fairly large investors have struggled with co-investments because direct deals require a very different toolkit.”
This article features in the “2025 Private Markets” publication.
