Co-investing is in full stride these days with more LPs co-investing alongside the GP. Some new funds are even offering LPs co-investing rights on a "no-fee, no-carry basis to his LPs." There are a number of benefits to co-investing (access to deal flow and to cap tables of high potential startups ahead of others). However, it can also create misalignment between LPs and GPs, especially if the LP is more interested in deal flow and reserving capital for direct investments.
Co-investing rights give LPs the ability to acquire an equity stake alongside the GP, often through a sidecar vehicle. This direct access to deal flow allows allocators to concentrate their portfolio in specific companies or an emerging technology—generative AI, for instance.
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