What's the latest on co-investing and direct deals alongside GPs?

Limited Partners (LPs) are increasingly pursuing co-investments and direct deals to enhance returns by avoiding fees and carry, a strategy termed "structural alpha" [1, 3]. This approach posits that even participating alongside average GPs in average deals can generate **top-quartile returns** simply by eliminating the typical fee load . The growing demand for these no-fee, no-carry opportunities is effectively reducing the all-in cost for LPs investing in alternative assets, even as headline management and performance fees on commingled funds remain largely unchanged [8, 25]. This pursuit of better economics is not limited to one segment; large private equity firms like Apollo are actively co-investing alongside their own clients, often using capital from their retirement services business, Athene, to become one of the largest investors in their own strategies .

The models for achieving direct exposure are evolving beyond traditional co-investment. While some LPs back independent sponsors on a deal-by-deal basis to access inefficient market segments and vet emerging talent [4, 14], a more radical disintermediation is underway. The Dockside platform, a joint venture between large asset owners UTIMCO and the State of Wisconsin Investment Board (SWIB) and multi-strategy hedge fund Walleye Capital, exemplifies this shift [2, 15]. This managed account platform unbundles the infrastructure, risk systems, and financing of a multi-manager fund, offering it directly to institutions at a significantly lower cost, estimated to be a reduction of **100-200 basis points** . This structure provides unprecedented trade-level transparency and control, while also serving as an incubator for portfolio managers, who can receive $300 million to $500 million in capital on day one [6, 20, 21]. This represents a significant power shift, allowing large LPs to move from being passive consumers to active partners in creating customized investment solutions .

Executing a direct investment strategy, however, imposes significant operational demands on LPs. Co-investment opportunities frequently require a definitive "yes" or "no" decision within a compressed timeframe of **24 to 48 hours** . This forces internal legal and operations teams to conduct diligence with the same rigor as a multi-year fund commitment but under extreme time pressure, driving an industry-wide trend of professionalization and team growth among endowments and other asset owners [7, 8]. To manage the increasing complexity of global regulatory reporting and legal review for their direct portfolios, firms are increasingly adopting technology, including AI . Despite a slower fundraising environment, fund terms have not broadly shifted in LPs' favor, making the operational capacity to execute on co-investments one of the few reliable levers for improving economic alignment .

This trend toward direct investing occurs within a bifurcated private market landscape. A massive influx of capital from the retail and wealth channels is flowing primarily to large, brand-name managers, creating a fundraising gap for mid-sized and smaller players [19, 22, 24]. While this "democratization" alters the competitive dynamic for GPs [17, 19], sophisticated LPs are simultaneously becoming more tactical in managing their illiquid portfolios in response to slower realization cycles . The enthusiasm for direct deals in private equity also contrasts sharply with sentiment in venture capital, where LPs face a liquidity crunch and fundamental questions about risk compensation, with some arguing that **90% of LPs** should avoid the asset class altogether due to structural misalignments and the mathematical difficulty for large funds to generate historical returns [28, 29].