Sidley’s Inaugural Texas Funds Forum: Conflict Considerations in Co-Investments and SPVs

On October 20, 2026, Sidley’s Investment Funds group hosted its inaugural Texas Funds Forum, “One Strategy, Many Vehicles: Conflict Considerations in Co-Investments and SPVs,” at the firm’s Houston office.

Sidley partners Ivana Rouse, Dan Allison, Scott Macdonald, and Sam Seley led an interactive discussion examining the legal and practical challenges that arise when multiple investment vehicles managed by the same sponsor invest in a single asset. Following an investment from acquisition through ownership, financing, and exit, the panel explored how competing interests among funds, co-investment vehicles, and special purpose vehicles (SPVs) can affect investment decisions, financing arrangements, and exit strategies.

Co-investments have become an increasingly important component of private equity transactions, driven by fundraising pressures, larger transactions, and investor demand for lower-fee exposure. While these structures offer flexibility to sponsors and investors, they also introduce potential conflicts that can evolve throughout the investment lifecycle.

Key Takeaways

• A shared investment creates competing fiduciary obligations. When a sponsor invests in the same asset through a main fund, co-investment vehicles, and SPVs, the manager must consider its duties to each client. Differences in fees, carried interest, entry prices, investor bases, and remaining fund terms can create competing interests, particularly when the manager determines how investment opportunities, expenses, and exit proceeds are allocated. Clear governing provisions and sufficiently specific disclosures are important to identifying and addressing these conflicts.
• Investment and expense allocations require more than general disclosure. Allocation decisions at acquisition can raise significant regulatory considerations, particularly when co-investors receive different economic treatment or expenses are not allocated proportionately. SEC enforcement actions involving Energy Capital Partners¹, KKR², and Rialto Capital Management³ illustrate the risks associated with inadequately disclosed allocation practices. General provisions requiring fair and equitable treatment may not adequately address specific conflicts, underscoring the importance of aligning allocation practices, governing documents, and investor disclosures.
• Follow-on investments can create new allocation and dilution conflicts. Conflicts do not end when an investment closes. When multiple vehicles hold the same asset, their ability to participate in subsequent financing rounds may differ based on available capital, investment restrictions, or remaining fund life. If one vehicle cannot participate, another may provide additional financing, changing their relative ownership interests. These situations raise important questions about how managers determine participation, establish valuation, and address potential dilution. Recapitalizations, related-party transactions, and transfers between affiliated vehicles can introduce additional conflicts requiring careful consideration of applicable disclosure and consent requirements.
• Multi-vehicle structures create distinct considerations for lenders and portfolio company management. While fund managers must navigate fiduciary obligations to their investment clients, lenders generally rely on contractual protections to address risks arising from affiliated vehicles. Changes in ownership, the availability of equity support, and affiliated-lender arrangements can affect collateral protections, control rights, and recovery. Portfolio company management faces different challenges, including uncertainty over which vehicle can fund future growth, potentially divergent investment horizons, and the treatment of company-level expenses. These considerations highlight how decisions made at the fund level can have significant consequences for other transaction participants.
• Exit transactions can bring competing interests into sharper focus. Differences in cost basis, remaining fund life, and liquidity objectives may create conflicting preferences over the timing and structure of an exit. Even where vehicles participate on substantially similar economic terms, differences in rollover arrangements, transfer restrictions, or the liquidity of distributed securities can produce different outcomes. Continuation vehicle transactions and other transfers involving affiliated entities present additional considerations, particularly where a manager represents interests on both sides of a transaction. Clear exit provisions, appropriate disclosure, and carefully structured approval processes can help address these challenges.

The discussion highlighted how conflicts involving co-investments and SPVs can evolve as an investment progresses, often affecting investors in different ways. Anticipating these issues in fund documentation, investment allocation policies, financing arrangements, and exit provisions can help sponsors and other market participants navigate the complexities of investing through multiple vehicles.

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¹ SEC Order: Energy Capital Partners Management, LP (2022).
² SEC Order: Kohlberg Kravis Roberts & Co. L.P. (2015).
³ SEC Order: Rialto Capital Management, LLC (2020).