Co-Investment Sentiment

By William Maher, Director of Strategy and Research, RFA

Real estate co-investment is growing, but not all investors are on board

Originally published via IREI

Co-investment, also known as “sidecar” investment, has become an increasingly popular way for investors to gain project-specific exposure through commingled real estate funds, often at lower fee levels than fund investments themselves. The strategy can offer greater control over property-type allocation and risk exposure, though it generally does not provide additional influence over financing or disposition decisions.

Despite its growth, little organized data exists on how institutional investors and real estate investment managers use and evaluate co-investment programs.

To address that gap, RCLCO Fund Advisors conducted parallel surveys of institutional real estate investors and fund managers during first quarter 2026, examining participation history, portfolio sizing, fee expectations, evaluation processes, program design and future intentions.

The results suggest co-investment has become an established complement to commingled real estate funds, but investors and managers do not view its benefits the same way. Participation is widespread and often embedded in fund relationships, yet investor enthusiasm remains mixed. Managers, by contrast, report overwhelmingly positive experiences and expect co-investment to remain a core feature of future fund programs.

That disconnect highlights a central challenge for the strategy’s next phase of growth: Managers must demonstrate that co-investment delivers measurable risk-adjusted return benefits while designing programs that account for investors’ organizational and structural constraints.

Embedded in fund relationships

One of the survey’s clearest findings is that co-investment has become deeply embedded in institutional fund relationships. Eighty percent of participating investors negotiate co-investment rights into fund documents, and 45 percent of managers say co-investment is contractually required for at least some investors.
Among managers that offer co-investments, allocations average approximately 25 percent of fund size. Yet for most respondents, co-investment serves as a complement to fund exposure rather than a replacement. Investors use the strategy to increase exposure to specific assets, sectors or geographies without establishing a dedicated direct investment platform.

In many cases, co-investment functions as a conviction-weighted extension of a fund investment. It continues to provide something investors cannot as easily obtain through a traditional commingled fund: targeted exposure to specific opportunities with a known risk profile.

Mixed investor conviction

Investor sentiment remains mixed. Half of investor participants described their co-investment experience as positive, 20 percent said it was not positive, and 30 percent characterized it as neither positive nor negative.

One respondent said it could not determine whether its portfolio’s co-investments had outperformed its fund investments, noting a wide range of outcomes, including total losses. That uncertainty around return attribution represents a structural challenge for investors attempting to build an evidence base for or against co-investment as a strategy.

Among prior investor participants, co-investment represents a relatively modest portion of overall real estate exposure. Sixty percent report allocations below 5 percent of their committed real estate portfolio, with an average allocation of 6.4 percent. Measured against commingled fund commitments specifically, the average rises to 9.9 percent, a figure influenced by a small number of investors with concentrated co-investment programs, including one respondent that reported co-investments equal to 50 percent of fund commitments.

Evaluation process generally meets investor needs

Despite mixed views about investment outcomes, investors are largely satisfied with the mechanics of evaluating co-investment opportunities. Seventy percent described the typical evaluation timeline as reasonable or sufficient, and 90 percent rated the quality of information provided as very good or sufficient.
When asked how much time they would ideally have to evaluate a co-investment, responses clustered around three to four weeks, with an average preferred evaluation period of approximately 3.4 weeks.

That is a relatively tight timeframe, particularly for large institutions with investment committee requirements and legal review processes. Still, the fact that most respondents considered existing timelines adequate suggests managers have generally calibrated their processes to investors’ ability to evaluate opportunities.

Co-investment decisions are also largely handled internally. Seventy percent of respondents said they do not use an external consultant or adviser when evaluating co-investment opportunities. It remains unclear whether institutions pass on some opportunities because of competing priorities or limited internal bandwidth.

Structural barriers

Approximately 20 percent of investor respondents had not previously participated in co-investment. Their reasons were largely structural rather than rooted in dissatisfaction with the strategy. Barriers included insufficient time to make decisions, not encountering the right opportunity, wanting greater control over investments, and organizational resource constraints.

Nonparticipants nevertheless remain open to the strategy. Approximately 80 percent intend to participate in the future. The barriers they identified, however, are not easily removed. Mandate constraints can require policy changes, while faster decision making often requires organizational shifts or managers willing to accommodate longer evaluation periods.

Manager confidence

The manager perspective is considerably more positive. Among respondents that have offered co-investments, 95 percent described the experience as positive.
Managers cited several reasons for incorporating co-investment into their programs. Approximately 35 percent cited investor demand as the primary driver, while 25 percent pointed to avoiding concentration limits. Another 20 percent said deal volume exceeds fundraising capacity, and 15 percent indicated that all of the listed reasons applied.

Co-investment can also provide managers with a way to build relationships with new investors who may ultimately become fund investors.

Among managers that offer co-investments, allocations average approximately 25 percent of fund size, ranging from 11 percent at the low end to 40 percent at the high end. The strategy is most prevalent in higher-return vehicles: 80 percent of managers offer co-investment within value-added funds, 45 percent do so in opportunistic funds, and only 10 percent offer it in core strategies.

Managers also expect co-investment to remain part of future programs. Approximately 84 percent plan to continue offering co-investment with future funds. Among those managers, 62 percent expect activity to remain about the same as in the past, 19 percent expect to do more and the remaining 19 percent expect to do less or a lot less.
The manager outlook therefore remains broadly stable, with a modest lean toward growth, even as the investor outlook is comparatively flat to declining.

The fee divide

Beyond performance, fees represent one of the most significant points of divergence between investors and managers. While co-investment is often marketed as a lower-cost way for investors to gain additional exposure, expectations about what constitutes an appropriate fee structure vary considerably.

While the half management fee/half promote structure has emerged as the working standard for real estate funds, it does not align with broader private equity practice.

For private equity as a whole, “one of the most compelling reasons LPs seek co-investment is that they are generally offered at little or no attached economics, including the absence or reduction of management fees and carried interest, which allows LPs to lower the overall cost of their private equity portfolios and achieve higher risk-adjusted returns,” according to Benefits and Opportunities in Private Equity Co-Investing, a March 2026 report from the National Conference on Public Employee Retirement Systems.

This creates a potential disconnect between investor expectations and prevailing real estate practice. Many investors associate co-investment with reduced or minimal economics, while real estate managers often continue to charge meaningful fees and promote participation. As co-investment becomes more common, pressure may increase on managers to explain why those economics remain justified.

Beyond fees, access itself has become an important component of fund negotiations. Eighty percent of prior investor participants reported negotiating co-investment access as part of their fund documents. At the same time, 70 percent of managers allow investors outside their existing fund base to participate in co-investments, suggesting managers are also using co-investment as a relationship-building tool.

Proving value

The biggest challenge may not be access to co-investment opportunities but demonstrating that the strategy consistently creates measurable value for investors.
The findings suggest the industry has not yet conclusively demonstrated that co-investment improves risk-adjusted returns. While managers are overwhelmingly positive about the strategy, many investors remain uncertain whether co-investments consistently outperform traditional fund exposure after accounting for concentration risk, fees and opportunity costs.

That may be the survey’s most important finding. Co-investment has achieved broad adoption, but widespread use has not translated into universal conviction about its value.

The broader private equity industry provides another point of comparison. Co-investments in private equity generally carry little or no incremental cost, increasing pressure on real estate managers to demonstrate why higher co-investment fees are appropriate.

Managers also need to ensure investors understand the risks associated with individual investments and the importance of diversification across co-investment opportunities. Demonstrating consistent performance relative to comparable fund exposure and explaining any fee premium will be central to sustaining investor participation.

Future role

Among prior investor participants, 60 percent plan to continue co-investing, although expectations for future activity are generally flat to declining. Half expect future activity, measured in dollars, to remain about the same, while one-third expect it to decline. Only 17 percent expect future co-investment activity to increase.

One respondent that does not expect to make additional co-investments said they “are less important to us now as we have moved to focusing on separate account vehicles.”

That shift toward separate accounts and other bespoke structures could become increasingly important to the outlook for co-investment. These structures can provide investors with greater control over portfolio construction while potentially addressing some of the limitations associated with both commingled funds and individual co-investment opportunities.

Managers remain more optimistic, with 84 percent planning to continue offering co-investments. If institutional investors increasingly have access to separate accounts, joint ventures and other bespoke structures, co-investment will need to demonstrate a distinct portfolio benefit that those alternatives cannot as readily provide.

Future growth may depend less on expanding access to co-investment opportunities and more on proving their value. The survey results reveal a notable gap between investor and manager perceptions. Managers largely view co-investment as a successful and durable component of fund programs, while investors are more divided on both past performance and future commitment levels.

Co-investment has clearly become an established feature of institutional real estate investing. Whether it continues to expand, however, will depend on managers’ ability to demonstrate consistent risk-adjusted performance, articulate the rationale for fee structures, and design programs that fit within investors’ governance and resource constraints. The industry’s challenge is no longer convincing investors to participate. It is convincing them that participation consistently creates value.