Private equity direct investments and co-investments are expected to overtake traditional fund investing as the largest capital source within five years, according to Houlihan Lokey's LP Compass, the investment bank's first survey of the combined co-investment and directs market, which polled 56 of the market's most active buyers. Some 78% of respondents expect combined volumes to set a record in 2026, beating the $215 billion Houlihan Lokey estimates the market reached last year, a record made up of $161 billion in directs and $54 billion in co-investment. The report attributes the shift to visibility, since investors can underwrite a specific asset and model its returns directly rather than committing blindly to a primary fund. Almost three in four survey respondents said they are willing to pay variable carry on co-investments tied to managers meeting certain return thresholds, while directs buyers are less willing, with 46% accepting variable carry and just 13% willing to pay more than 20%, and more than a quarter of co-investors still insisting on paying no carry at all. In Europe, appetite is reflected in fundraising for co-investment funds, commingled vehicles that invest directly in companies alongside general partners, which have already raised €6.3 billion, around $7.3 billion, so far this year, nearly on par with the €7.2 billion raised in all of last year, according to PitchBook data, though capital is increasingly concentrated as the number of funds fell for a fourth consecutive year to just 14 closes. Pantheon Global Co-investment Opportunities Fund VI was among the largest co-investment funds to close this year, raising $3.2 billion together with its related vehicles when it closed in July, following the firm's record deployment of around $1.3 billion across 30 co-investment deals last year, while Partners Capital Investment Group held the final close of Merlin IV in February, raising over $1 billion in commitments for a strategy focused on lower mid-market and mid-market buyouts.
Houlihan Lokey IncHoulihan Lokey's LP Compass survey forecasts record directs/co-investment volumes, positioning the investment bank as a beneficiary of this market shift.
