MUMBAI: Big investors are no longer content to just back funds, they increasingly want to invest directly in the deals those funds pursue.
In India’s private markets, this push for co-investment rights is giving limited partners (LPs) more control over where their money goes and better economics, while encouraging fund managers to offer such access to secure commitments and execute larger deals. What was once optional is quickly becoming standard in fund negotiations.
“Co-investment has become almost a common ask by investors in any new fund raise. The LP while negotiating commitments, also insists on a meaningful co-investment right and makes adequate provision for the same,” said Siddharth Shah, senior partner at law firm Khaitan & Co.
Shah, who leads the firm's funds practice, explained that general partners (GPs)—who manage these funds—are at times able to get co-investment interest ranging from 25% to 50% of their fund size and in some cases almost 100% of the fund size. “This has indeed become a strong pull from a fundraise perspective.”
The shift is visible in recent trends. India’s overall fundraising activity hit an all-time high of $23.2 billion across 123 funds in 2025, according to an EY report, underscoring sustained confidence among LPs in Indian funds. The renewed appetite also reflects India’s rising allocation among global LPs amid China’s slowdown.
Fundraising lever
Fund managers are increasingly using co-investment access as a lever to attract capital.
“This is how it is pitched to LPs at the time of fundraising—the co-investment right is equal to the amount invested by a LP. These are ways to maximize their investment in the fund,” said Navin Honagudi, managing partner at Elev8 Venture Partners, adding that this trend has considerably grown in recent times.
Elev8 along with its limited partners invested ₹300 crore in nutraceutical brand Fast & Up’s parent Fullife Healthcare in March. The growth-stage venture capital firm closed its inaugural fund at ₹1,400 crore in September last year.
Other firms such as L Catterton India and Paragon Partners have highlighted their ability to pursue larger deals through co-investments. London-based Pantheon Ventures, which has backed Indian private equity firms including Kedaara Capital, Multiples and ChrysCapital, said it is actively evaluating such opportunities in the country. Novo Holdings, which has invested in private equity giants like KKR and TPG, has also participated in such deals by leveraging its LP position, Mint reported earlier.
The backdrop is also improving, with stronger deal activity and exits. PE/VC deals rose 1.6x to $207 billion between 2016-20 and 2021-25, while exits more than doubled to about $120 billion, McKinsey said in a report last month.
The report noted that co-investments have grown from negligible levels two decades ago to 25-28% of deployment value and around 20% of volume over the past five years, becoming a key pricing lever for LPs.
“During a fundraise, or diligence on a fund, most LPs may ask for the coinvest provided by the fund over the past few years, and how those investments have performed,” said Saurabh Chatterjee, managing director at ChrysCapital, which raised a $2.2 billion fund last year to target buyout opportunities.
“The reason driving this interest is simple: most coinvests are on a fee free / carry free basis, or at least a reduced fee/reduced carry basis, and hence getting access to co-investments reduces the blended fee paid by LPs and hence increases their blended net IRR from a GP or a fund,” Chatterjee said, adding that it’s a great way for an LP to increase the returns they get via a certain GP.
Traction and returns
A survey by McKinsey of more than 50 global LPs found nearly 60% have done co-investments in India, with 54% reporting outperformance relative to underlying fund investments, 42% seeing similar returns and 4% underperforming.
Co-investment activity, often concentrated in buyouts and growth-stage deals, has been strongest in new technology, followed by financial services, consumer goods, IT and IT services, and pharma and healthcare.
Firms are also using co-investments to compete for larger transactions. ChrysCapital, for instance, backed Mankind Pharma with an investment of about $350 million from a $600 million fund, with a significant portion coming from five co-investing LPs.
Beyond lower fees, co-investments allow LPs to increase exposure to specific deals and, in some cases, gain flexibility on exits. While exits are typically aligned with the fund’s timeline, Honagudi said there are instances where LPs can control timing if the fund's independent rights are not affected, depending on deal structure and the size of the LP’s cheque.
Historically, global LPs have led co-investment activity, often with dedicated teams. Domestic investors are now catching up.
“While initially the preference to seek co-investment rights was predominantly with global LPs, domestic LPs including family offices, fund of funds and some HNIs are also now seeking co-investment rights from GPs,” Shah said.
Honagudi added that demand has increasingly shifted toward domestic players over the past two to three years. “Some of the domestic LPs including family offices may have larger investment teams than typical funds. They have good proprietary deal flow given their exposure to multiple funds from the capacity of a LP.”
Regulation is also helping formalize the trend. The Securities and Exchange Board of India’s new co-investment schemes, introduced last year under rules for alternative investment funds (AIFs), are simplifying structures by reducing reliance on the costlier PMS route while offering greater flexibility and lower compliance requirements.
“This is definitely a more efficient route to structure co-investment as against the erstwhile co-investment PMS route and should further encourage more co-investment discussions,” Shah said.