The annual value of global limited partner coinvestments in private equity and venture capital deals is on track to fall by more than half in 2024 after a quiet start to the year.

The announced value of all coinvestments involving institutional investors was $7.33 billion globally as of July 24, according to S&P Global Market Intelligence data. If coinvestment activity continues at the same pace in the second half of the year, the aggregate global value of coinvestments will decline by more than 50% from $30.6 billion in 2023.

Coinvestment activity mirrors trends in the broader M&A market, and the apparent slowdown this year is closely linked to the slower rate of private equity- and venture capital-backed investments since 2022, said Maurice Gindi, a partner at Cleary Gottlieb. With private equity dealmaking now on the upswing, coinvestments may be poised to bounce back.

"The biggest driver here is just the general deal environment," Gindi said.

Diverging deal trends

Trendlines for coinvestment activity and the overall private equity deal environment diverged in 2023. The value of coinvestments in 2023 increased nearly 10% over 2022 as the aggregate value of private equity and venture capital deals dropped 32% over the same period.

Adding equity from a co-investor into a deal was one tactic private equity general partners (GPs) used to manage the higher interest rates and tighter lending standards that emerged in 2022, explained Patrick Kocsi, head of coinvestment for North America at Ardian.

"In 2022, 2023, if I'm a GP sitting around and I've got a transaction I want to get done, I need to manage that higher interest rate environment and I need to manage getting that debt approved. I want to know that my equity is rock solid," Kocsi said.

That trend carried into 2024, even as financing markets loosened.

"The deals that are getting done, you need more equity to complete them, and so we are seeing increasing coinvest as a percentage of the overall deal sizes," Gindi said.

Fundraising factor

Even as the value of coinvestments appears set to decline in 2024, the number of coinvestments as of July 24 was on track to come in higher than the prior-year total. That may reflect GPs' use of coinvestment to nurture relationships with limited partners (LPs) and maintain fundraising momentum at a time when global private equity fundraising continues to decelerate from its record year in 2021, suggested Jamal Fulton, also a partner at Cleary Gottlieb.

"It's a great environment to be closest to your best LPs," Fulton said.

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At a presentation for investors and analysts delivered in April, KKR & Co. Inc. Head of Global Client Solutions Eric Mogelof said coinvestment opportunities kept the firm close to LPs inundated with new fund launches and becoming more selective about their roster of general partners.

"We're hearing from those LPs that they want to reduce the number of GPs with whom they work, and they want more from those GPs," Mogelof said.

Largest deals

The largest private equity or venture capital deal with an LP co-investor since 2023 featured Canada Pension Plan Investment Board partnering with Silver Lake Technology Management LLC on the acquisition of Qualtrics International Inc., a developer of experience management software.

The technology, media and telecommunications sector has racked up the most private equity and venture capital coinvestment deals since 2019.