From Yahoo Finance · · 1m 20s
Direct deals set to overtake traditional PE funds
Investors are shifting billions away from blind fund commitments toward deals they can see and model themselves.
In brief
Investors are shifting billions away from blind fund commitments toward deals they can see and model themselves. Private equity investors increasingly prefer direct investments and co-investments over traditional funds because they can underwrite specific assets and model returns upfront, rather than committing…
Direct deals poised to dominate
Investors expect PE direct investments and co-investments to become the largest capital source within five years, overtaking traditional fund investing.
Record volumes expected in 2026
78% of surveyed investors expect combined direct and co-investment volumes to hit a record in 2026, surpassing the $215 billion reached last year.
Visibility drives the shift
Investors prefer directs and co-investments because they can underwrite specific assets and model returns directly, unlike blind commitments to primary funds.
Co-investors embrace variable carry
Nearly 75% of investors are willing to pay variable carry on co-investments tied to return thresholds, but directs buyers are more resistant, with only 46% accepting it.
European co-investment funds surge
European co-investment funds have raised 6.3 billion euros so far this year, nearly matching all of last year's 7.2 billion euros, though the number of funds continues to decline.
Mega-funds lead the way
Pantheon's co-investment fund raised $3.2 billion in July, while Partners Capital's Merlin IV closed with over $1 billion in commitments focused on mid-market buyouts.
In short
Private equity investors increasingly prefer direct investments and co-investments over traditional funds because they can underwrite specific assets and model returns upfront, rather than committing capital blindly.
