How Co-Investments Are Taxed Differently from Fund Investments
Co-investing directly alongside a sponsor changes the tax picture meaningfully. The differences from a standard fund position, explained.
Direct ownership changes the tax stack
A fund position holds you through a partnership or corporate vehicle, with one layer of structuring between you and the asset. A co-investment is typically direct ownership of equity (or preferred equity) in a single deal SPV — often the same SPV the fund uses, but on different terms.
Direct ownership often means direct exposure to source-country tax rules, sometimes without the fund-level treaty access. The post-tax outcome can be meaningfully different from the parallel fund position.
Reduced fees and carry — usually
Co-investments typically come with zero or reduced management fee and zero or reduced carry. The post-fee return is therefore higher than the parallel fund return, often by 200–400 bps on an IRR basis over the life of the deal.
But the tax structure may be less efficient, the diligence burden falls more on you, and the position is more concentrated. Net of all those effects, co-investments still tend to outperform fund positions for investors who can evaluate single-deal risk.
What to model honestly
Source-country withholding on distributions. Personal tax on income vs. gains. Reporting obligations in your residency. Exit-tax implications if you change residency mid-hold. The headline economics look better; the post-tax economics depend on your specific situation.
Ready to invest with structure?
Browse vetted projects on Aqmār — every deal held in escrow until ownership and documentation are verified.