The retreat from direct private equity investing by major institutions marks a strategic shift rather than a wholesale rejection of the model. Alaska Permanent Fund Corporation recently announced plans to scale back direct investments following underperformance, joining other large players like La Caisse and Ontario Teachers’ Pension Plan in reducing their direct exposure.

This pivot reflects challenges including exit freezes and deal scarcity that have made solo direct investing less attractive. However, the underlying thesis remains sound - institutional investors continue to seek exposure to private companies but through co-investment partnerships with general partners instead. These arrangements offer similar benefits to pure directs without the management overhead.

Data shows co-investing is thriving, with 21 percent of LPs now using the strategy according to Private Equity International's 2026 survey, up from 18 percent the prior year. StepStone found co-invest deal volumes have outpaced overall M&A over the past decade. The appeal is clear: 61 percent of co-investments outperformed their parent funds' TVPI metrics, while CalPERS has generated some of its strongest returns through carefully selected co-investment partnerships.