Co-Investment Requirement¶

Co-investment policy — instantiates Skin-in-the-Game Alignment

Requires the decision-maker to put their own capital into the very venture they authorize, invested on the same terms as the parties they expose, so they win and lose together.

A Co-Investment Requirement makes the person who selects, structures, or recommends a risky venture put their own money into that same venture, on the same terms as the people they are asking to bear it. Its distinctive move among its siblings is symmetry through shared ownership: not a forfeitable pledge held against a failure (a bond), not a slice of loss carved off after the fact (a deductible), but a genuine investment in the same pool, so the decision-maker's upside and downside move in lock-step with everyone else's. If the deal is good, they gain alongside; if it is bad, they lose alongside — and crucially, they cannot capture the upside while routing the downside to others, because their capital is riding in the same boat, not a safer one.

Example¶

A fund manager is raising money from outside investors for a new private-equity fund and will earn a share of the profits. Left there, the arrangement is lopsided: the manager collects a cut of the gains but risks little of their own if the fund's bets sour. So the fund's terms require the manager — the general partner — to commit a meaningful amount of their own capital into the fund, invested pari passu with the outside investors.^[1] Now the manager is not just paid to pick winners; they personally lose when the fund loses, on the same securities, at the same time. The point is not the size of the commitment but its sameness: because the manager's money sits in the identical pool on identical terms, there is no private exit that spares them a loss the investors take. Every deal they wave through is a deal they are personally invested in.

How it works¶

Anchor a real stake. The decision-maker commits value that genuinely matters to them into the venture — enough that a loss is felt, not a token.
Invest into the same pool. The stake goes into the identical risk pool as the exposed parties, not a protected sidecar, so exposure is shared rather than parallel.
Match the terms. The commitment ranks alongside the others (same securities, same seniority, same timing) so upside and downside are captured symmetrically.
Check the symmetry. Confirm the actor cannot collect gains while shedding the matching losses through fees, priority, or a side arrangement.

Tuning parameters¶

Commitment size — how large the co-investment is relative to the actor's wealth and to the pool. Larger tightens alignment but concentrates the actor's personal risk and can exclude those without capital.
Terms parity — how strictly the stake ranks pari passu with the exposed parties. Any seniority, preferential fee, or early-exit right the actor keeps reopens the exposure gap.
Fresh vs. rolled capital — whether the stake is new money or reinvested earnings; rolled gains keep the actor exposed to their own prior decisions.
Liquidity lock — whether the co-investor can withdraw early. Free exit lets the actor dodge a loss others cannot, undermining the symmetry.
Affordability floor — a level below which the requirement would simply screen out capable-but-poorer actors rather than align them.

When it helps, and when it misleads¶

Its strength is that it aligns through ownership, which is the cleanest form of skin in the game: the actor does not merely risk a penalty for failure, they hold the same asset and share its fate. That makes it well suited to situations where the actor both selects the risk and profits from it, and where a bystander could otherwise book the upside and externalize the loss.

Its failure modes are access and false symmetry. A meaningful co-investment can exclude talented actors who lack capital, quietly turning an alignment tool into a wealth filter. More insidiously, symmetry can be staged: the visible co-investment sits beside invisible offsets — a management fee that pays regardless, a preferential exit, a hedge — that restore the very asymmetry it was meant to close.^[1] The discipline is to test true net exposure, not the headline commitment, and to keep the actor's stake ranking alongside the parties they expose rather than ahead of them.

How it implements the components¶

Co-Investment realizes the shared-ownership side of the archetype:

stake_or_collateral_anchor — the committed capital is the concrete value that remains at risk and must matter to the actor.
risk_pool_interaction_rule — the stake is invested into the same pool as the exposed parties, not a protected sidecar, which is what makes exposure shared rather than parallel.
upside_downside_symmetry_check — matching terms ensure the actor who captures gains also bears the corresponding losses.

It does not lock the stake up over time — that is Equity Stake with Retention Period — nor define how each realized loss is split, which is Deductible or First-Loss Share and Shared-Loss Contract, nor record the actor's track record, which is Reputation-at-Risk Registry.

Instantiates: Skin-in-the-Game Alignment — it closes the gap between who decides and who bears the downside by making the decision-maker a co-owner of the risk.
Sibling mechanisms: Equity Stake with Retention Period · Deductible or First-Loss Share · Deferred Compensation with Forfeiture · Eat-Your-Own-Dogfood Requirement · Reputation-at-Risk Registry · Shared-Loss Contract · Clawback Clause · Collateral Requirement · Malpractice or Professional Liability · Performance Bond

References¶

[1] In private-equity funds the general partner customarily makes a GP commitment — investing its own capital into the fund alongside the outside limited partners, typically a small but non-trivial share of the total — so the manager gains and loses on the same deals. It is a real, standard term and a clear case of co-investment; it also illustrates the false-symmetry risk, since management fees can pay the GP even when the co-invested capital is losing. ↩