Structures · room 06 of 11
Co-investment.
Co-investment travels in three shapes, and only one of the three has its regulatory standing settled by a test rather than by a decision. A vehicle formed to hold one line beside a fund is not outside the definition of a collective investment fund because it was formed for one transaction: the definition is drawn around control, and control is exactly what the choice of shape allocates.
01 · The three shapes
Co-investment
Co-investment travels in three shapes. The first question is which of them is a fund.
Co-investment is direct participation by named investors in a single transaction, beside a fund and outside that fund's own commitments. Three shapes, one test that decides which rulebook each of them stands under, and two perimeters that are cleared separately.
- The co-invest SPV
An aggregating vehicle. Co-investors subscribe into it, it subscribes for equity in the acquisition entity alongside the fund, and it holds one line on that register. Governance at the acquisition entity is exercised by the vehicle; governance inside the vehicle is exercised under the vehicle's own constitution. Two documents, two votes, and they have to agree. The vehicle has its own waterfall, and exit proceeds pass through it before any co-investor is reached.
- The side-car
A standing vehicle with committed capital, its own closings, its own offer document and its own tier. It invests beside the fund on qualifying transactions at a stated ratio, under documents settled before any of those transactions exists. Built this way it meets every feature of the published definition of a collective investment fund, and it is formed as one from the start rather than discovered to be one later. Everything that governs the main vehicle governs it.
- Direct participation
Each co-investor is entered on the acquisition entity's own register in its own name, signs the shareholders agreement, and holds its own transfer, drag, tag, consent and information rights. Nothing aggregates. There is no intermediate waterfall and no intermediate vote. Exit requires each of them, and each of them knows it.
These are not three ways of writing the same arrangement. They allocate control, economics and the exit differently, and they fail differently.
02 · The topology
Three states of one figure
The manager stands beside the fund in one shape and inside the co-investment vehicle in two of them.
Drawn as three states of one figure, the choice stops being a matter of preference. What moves between the states is the number of lines standing on the register and who manages what.
Two things move between the three states, and both are settled in the structure paper. Neither of them is settled in the shareholders agreement, which is where most rooms first look for them.
03 · The test that runs first
The fund definition
The definition is drawn around control, not around strategy.
A collective investment fund is defined by a shape rather than by what it holds. Four features, published on this site as the ADGM definition, and an aggregating vehicle formed for one transaction meets them on the face of it.
- Property, held for participants
There is property, and participants whose money bought into it. The arrangements exist so that those participants receive profits or income arising from the acquisition, holding, management or disposal of that property. A co-invest SPV holding one line in an acquisition entity satisfies this before anybody has drafted anything.
- Participants who do not manage
Participants do not have day-to-day control over the management of the property, whether or not they hold a right to be consulted. This is the hinge. Genuine direction of the asset by the participant is what that limb is read against, and whether an arrangement is a fund or ownership with an agent is a characterisation question settled on the facts, by counsel. A consultation right in the SPV constitution does not move a vehicle across this line.
- Managed as a whole
Contributions and profits are pooled, or the property is managed as a whole by or on behalf of the operator. Three co-investors sharing one line, one vote and one waterfall are not tracked as three. They hold units of one thing.
- Somebody licensed to run it
Schedule 1 to the Financial Services and Markets Regulations 2015 specifies the regulated activities, and managing a collective investment fund sits among them in its own right, separate from managing assets under a discretionary authority. Two permissions, two sets of duties. A manager holding discretion over portfolios does not thereby hold the other one.
Not the number of assets, not the intended life of the vehicle, and not whether the participants know each other or negotiated together. A vehicle formed for one transaction is not outside the definition because it is formed for one transaction. The definition is drawn around control.
Whether the co-investors direct the asset, or hold a unit of something somebody else manages as a whole. In an aggregating vehicle managed by the fund's own manager, the answer is legible on the first page of the constitution, in the clause describing who exercises the vote at the acquisition entity.
An express carve-out in the centre where the vehicle is formed, and nothing else. Whether either centre carries one for a vehicle formed for a single transaction is put as a question at 09, because a carve-out is read from the text that creates it rather than from how common the arrangement is.
The test is published, it is short, and it runs in ten minutes. It is also the test nobody runs, because the vehicle was called an SPV in the term sheet and nobody reopened the word.
04 · Two perimeters
Arranging and promoting
Arranging and promoting are governed by different provisions. Clearing one clears nothing of the other.
Offering a participation outside the existing investor base may be arranging. Communicating it may be a promotion, on a perimeter that runs independently of the first and does not care how the first was answered. Three things settle how the two sit against each other, and each centre's own text is read separately at 09.
Dealing in investments as principal, dealing as agent, arranging deals in investments, advising, and managing assets are separate items in both centres, and no quantity of one produces another. Ask each party at the table which item it holds, and watch the answers separate. The person licensed to manage is not thereby licensed to advise, and the party arranging may lawfully be neither.
Making arrangements with a view to another person entering into such a transaction. Note what the item does not require: the arranger need never have expressed a view on anything. Guidance under GEN 2.9.1 confirms the activity can capture a person whose involvement in a chain of events is important enough that the transaction would not otherwise occur. That is a wide door, drafted to be wide.
The DIFC restricts financial promotions in or from the Centre at Article 41A, and Article 41A is drawn on where the communication is made rather than on where the person communicating is physically located, which is our reading of its terms as at August 2026. Where any part of the offer touches the United Kingdom, section 21 of the Financial Services and Markets Act 2000 is live on its own terms. This perimeter goes live the moment the first deck leaves the building, which is ordinarily before anyone has asked the arranging question at all.
Two perimeters, running independently, and a co-investment offer crosses both. A perimeter opinion that answers one and is silent on the other has answered half the question and looked complete doing it.
05 · Shape by consequence
The three shapes, crossed
The shape is usually chosen for speed. It settles six things, and none of them is speed.
Each shape answers the same six questions. Three of them the shape decides outright. In the other three the duty is identical whichever shape is used and only the place it is discharged moves, which is why those three are the ones assumed away.
| By shape · by consequence | On the published test | Allocation discipline required | Where the economics are computed | What the conflicts disclosure covers | Who controls the exit | A transfer mid-life |
|---|---|---|---|---|---|---|
| Co-invest SPV | Four features to run: property held for participants, participants without day-to-day control, managed as a whole, and a manager holding the fund permission. An aggregating vehicle managed by the fund's own manager meets them on the face of it, and it meets them before anyone at the table has decided anything. | A written policy that pre-dates the transaction, applied mechanically. Discretion exercised after the transaction is a conflict wearing a topology. | Inside the vehicle, under its own waterfall. Proceeds pass through it before any co-investor is reached. | The manager's own conflicts obligation under the conduct rules, together with material inducements connected with how a participant came to be introduced. | The vehicle votes one line at the acquisition entity, and its own constitution decides how that vote is formed. Two documents, and a mismatch stops a sale. | Governed by the vehicle's constitution. The acquisition entity register does not move, and the other holders may never learn of it. |
| Side-car | Formed as a fund from the start: its own tier, its own offer document to that tier's standard, its own register, its own forum, and whatever holder cap that tier carries. The rung is fixed at formation, on the ladder drawn at vehicles and legal form. | Standing documents fix the ratio in advance, so the discipline is drafted rather than exercised. The policy still has to say what qualifies as a transaction the ratio reaches. | Inside the side-car, under its own waterfall, and the relationship between that waterfall and the main vehicle's is a drafting decision taken years before the first distribution. | The same obligation, plus whatever the side-car's own offer document has already told its investors about allocation between the two vehicles. | The side-car votes its own line. Ratio provisions ordinarily bind it to move with the fund, and ordinarily is not a term of art. | Governed by the side-car's constitution and its own transfer restrictions, on its own register, and subject to whatever holder cap its tier carries. |
| Direct participation | Nothing aggregates, so there is no vehicle to test. Each co-investor holds in its own name and directs its own holding, which is the other side of the same hinge. | The same written policy. The absence of a vehicle removes none of it, and the allocation is more visible because each participant sees the size of every other line. | Nowhere in between. Each participant takes its share directly from the acquisition entity, with no intermediate waterfall. | The same obligation, and it is harder to discharge, because each participant negotiates its own terms and every set of terms is a comparison the others can make. | Every one of them. Drag, tag and consent thresholds in the shareholders agreement are the only thing standing between an agreed sale and a stalled one. | A transfer moves the acquisition entity's own register, and triggers whatever pre-emption, consent and change-of-control machinery sits there. |
06 · When it is reached for
The occasions
Co-investment is reached for when a transaction outgrows the fund. It is the wrong answer in four situations, and each of them is visible before a term sheet.
Four occasions, and four refusals. The refusals are the useful half, because each of them has a shape that looks like co-investment and is something else.
Larger than the concentration limit
The transaction exceeds what the fund may hold in one position. The excess has to sit somewhere, and the fund has to keep its own limit while it does.
A relationship worth deepening
An investor has asked for exposure it cannot get inside its commitment, and the manager wants the relationship in the next fund as well as this transaction.
A participant who improves the asset
A strategic holder brings something capital does not: a distribution channel, an operating capability, a consent that is easier to obtain from the inside.
A side letter that already promised it
An existing investor holds a right to be offered co-investment on defined terms when the occasion arises. The occasion has arisen, and the terms were fixed before the transaction.
Where the allocation cannot be run against a policy that pre-dates the transaction, the arrangement is a conflict wearing a topology. No shape corrects that, and the aggregating vehicle makes it harder to see, because one line on a register looks tidier than three.
Where the co-investor needs a seat, a veto or information rights that an aggregating vehicle cannot pass through to it, the answer is direct participation and a slower closing. Aggregation is bought with governance, and the price is paid by the participant who wanted the governance.
Where the timetable will not let the co-investors finish their own work, the fund takes the whole line intending to place it afterwards. That is a warehousing arrangement with its own risk, its own valuation question and its own disclosure. It has to be named as one at the outset, not described as co-investment and renamed at the advisory committee.
Where the co-investor's own regulatory position means the participation cannot be offered to it in the place the offer would be made. That is a perimeter question, and it is answered before the deck exists rather than after it has circulated.
Three of the four refusals are legible in the manager's own documents. The fourth is legible only in the co-investor's, and it is the one nobody asks for until the deck has already gone.
07 · The binding constraints
What binds, and where it surfaces
Eight constraints bind the shape. Five are written in a rulebook and three are written only in your own documents.
Each constraint below is named to what creates it and to the stage at which it surfaces. The three that no regulator writes are the three that surface latest and cost most.
The aggregating vehicle may itself be a collective investment fund: property held for participants, participants without day-to-day control, pooled or managed as a whole, and someone holding the fund permission to run it. Surfaces at the structure paper if anyone asks. Otherwise at an examination, or at the diligence for the next raise, where it is asked by somebody with no reason to be gentle about it.
An Authorised Firm carries its own obligation to identify and address conflicts. The obligation sits in the conduct rules the firm is examined against, and a consent given under the partnership agreement is a contractual permission rather than a discharge of it. Two instruments, two places, and only one of them is read by an examiner. A policy written after the allocation is not a defence; it is evidence of the problem. Surfaces at advisory committee review, and again as a standing question at every subsequent raise.
Making arrangements with a view to another person entering into such a transaction, and the item does not require the arranger to have expressed a view on anything. Surfaces when the participation is offered outside the existing investor base, which is the moment the manager stops describing and starts introducing.
The second of the two perimeters at 04, running independently of the arranging analysis. Surfaces the moment the first deck leaves the building, which is ordinarily weeks before anyone instructs a perimeter opinion.
Classification attaches to the entity that signs rather than to the principal behind it, so a family holding capital through a substantial corporate vehicle may find the vehicle, not the principal, is what gets classified. Which audiences a rung admits at all is drawn at vehicles and legal form. Surfaces when a co-investor turns out to be an individual whose signing vehicle will not classify, in the week of signing.
The shareholders agreement at the acquisition entity and the constitution of the aggregating vehicle are separate instruments carrying separate thresholds. Nothing reconciles them except drafting, and no rulebook requires it. Surfaces at exit, when the mismatch stops a sale that is otherwise agreed and fully priced.
A seller rolling equity into the acquisition vehicle joins the register mid-transaction, and the register, the classification work and the shareholders agreement all take a new party at once. Surfaces at signing, and again at the fund's next close when the register is read by an incoming investor's counsel.
An existing investor's most-favoured-nation right may reach the co-investment terms, depending entirely on the scope wording of the side letter that created it. No rulebook writes that clause. Surfaces when the co-investment terms are circulated, and not one day before.
The five that a rulebook creates are readable in advance, and everyone accepts that they should be read. The three your own documents create are readable in advance too, and they are read for the first time when the buyer is already at the table.
08 · Where it breaks
The failure points
Five failures, and the one that costs most is the one that costs nothing to prevent.
Each of these is reached by a structure that was defensible on its own terms. What failed was the order in which the questions were asked.
- 01 The vehicle was never tested No tier, no offer document written to any standard, no permission covering the vehicle's operation, and a register of participants who do not control the asset. The test is published and it is short. It belongs before the constitution is drafted, not after a regulator has asked for the constitution.
- 02 The offer reached someone it could not reach Either classification fails in the place the offer was made, or the communication itself crossed the promotion perimeter that the arranging analysis never covered. Both were separated at 04, and both were live before the deck was sent.
- 03 Drag thresholds that do not reconcile The buyer is ready, the fund can be dragged, and the aggregating vehicle cannot deliver its line because its own constitution sets a higher threshold than the shareholders agreement assumed. The exit stalls inside the manager's own structure, in front of a counterparty.
- 04 The line was taken whole and placed later The fund underwrote the full position and syndicated afterwards at original cost, and by then the asset had moved. The advisory committee reads the difference as a transfer of value from the fund to the co-investors. The defence is a written policy and a contemporaneous valuation, and both have to have existed beforehand to be a defence at all.
- 05 The policy was written after the allocation The commonest failure on this page, and it does not damage this transaction. It damages the next raise, where allocation is asked as a standing question and answered from a document with a date on it that everyone in the room can read.
Four of the five are corrected by moving one question earlier in the sequence. The fifth is corrected by having written something down before it was needed, which is the same instruction in a different tense.
09 · ADGM and the DIFC
The two centres
Both centres publish exclusions from arranging. They are drafted differently, and neither is read from the other.
The arranging item is wide in both places, and each centre narrows it in its own words. An introducer standing on that item is looking for the exclusion it stands under, and which exclusion that is, in which centre, is established before the introduction is made rather than after it.
ADGM · one exclusion, four limbs
Within Chapter 2 of Schedule 1 one exclusion is headed Arranging deals with or through Authorised Persons, at paragraph 21. The party is not an Authorised Person. The transaction is entered into with or through one. Either it is entered into on advice given by an Authorised Person, or it is clear in all the circumstances that the client is not seeking the arranger's view on the merits. And it switches off where the transaction relates to a contract of insurance, and where the arranger receives from a person other than the client any advantage arising out of making the arrangements for which it does not account to the client. A second, general exclusion sits at Chapter 18 for Non-ADGM Persons, alongside paragraph 21 rather than instead of it.
The DIFC · six exclusions, each with its own condition
GEN 2.9.2, a party to the transaction cannot be the arranger of it. GEN 2.9.3, the mere communication channel, and the exclusion falls away where the provider adds value to the communication with a view to facilitating a contract. GEN 2.9.4, lenders accepting debt instruments in the ordinary course of lending. GEN 2.9.5 and GEN 2.9.6, issuers of their own securities and crypto tokens. GEN 2.9.7, lawyers and accountants arranging incidentally in the course of a practice, and only where the activity is not separately rewarded. Both conditions there are live, and either one failing closes the door.
An introducer outside the transaction, bringing a party to a firm a regulator authorises, stands on the arranging item and needs an exclusion to stand under. Which provision that is, in the centre where the arrangements are made, is the question to put to the manager's own counsel before the introduction rather than after it. GEN 2.7.4 is the provision most often reached for, and it addresses a person dealing in investments as principal by entering into a transaction with or through an authorised firm: a different activity under a different entry. Whether it reaches an arranging fact pattern at all is part of the same question, and it is answered from the module rather than from the shape of the arrangement.
An exclusion in one regime is not evidence of an exclusion in another, and the same is true of a regime outside the Gulf whose wording a practitioner already knows. Where an analogue elsewhere is being reasoned from, the reasoning is checked against the text of the centre the arrangements are actually made in, and the check is the work rather than a formality after it.
Where the reading stops · August 2026
Whether either centre carries an express carve-out for a vehicle formed for a single transaction, and on what conditions, is a question for the primary text. Nothing published on this site answers it, and the fact that the shape is common is not an answer: a carve-out is read from the text that creates it, never from the frequency of the arrangement.
10 · Where our part ends
The line
The test runs before the constitution is drafted. The conclusion is signed by the people who give it.
We map the test against the published text, item by item, and set out what each item turns on. Six things stay with the client and the advisers it appoints, and what this room does is name each of the six precisely enough that it can be asked for before the transaction needs the answer. The last row below is what the room hands them.
In each place the participation will be offered, covering arranging and promotion separately. One opinion that addresses both, or two that between them leave no gap. An opinion that answers arranging and is silent on promotion is a document that will be read as covering both.
Drafted, negotiated, and reconciled against each other, including every threshold, consent and information right that appears in both instruments and has to carry the same number in each.
Written, adopted and disclosed. The policy is the manager's own instrument. What we identify is the stages of the transaction at which it has to already exist, and what it has to already say about a transaction of this shape.
For each co-investor and for the aggregating vehicle, on each crossing, in each year. Where a rollover holder arrives, on that holder's own position as well as on the vehicle's.
On every new participant, including a holder arriving mid-transaction, with source of funds and source of wealth asked and evidenced separately rather than treated as one question.
What an incoming holder does to the register, to the consents already given, and to what the fund's next close has to disclose about who now stands on the register beside it.
What this room ends on: the three shapes drawn side by side, the published test run against each of them, the two perimeters separated, every shape rejected with the constraint that removed it, and the questions the instruments leave open stated rather than answered.
The shapes are drawn before the transaction has a shareholders agreement, and the vehicle is tested before it has a constitution. After either of those, what would have been an edit becomes a consent exercise.
Read at Schedule 1 to the Financial Services and Markets Regulations 2015, the GEN module and Article 41A · August 2026