Deal-by-deal investing – a sign of an evolving fundraising market or a stopgap to address temporary fundraising challenges?

The private equity sector is seeing increasing amounts of capital flowing to sponsors operating deal-by-deal investment models, commensurate with the unprecedented growth of the independent sponsor market in recent years. In this bulletin, our Private Funds team explores the rationale for this growing trend and the nuances that sponsors and investors should consider when deciding between operating/investing in blind pool funds vs. deal-by-deal investment structures.  

The private equity sector has traditionally offered investors the option of investing in commingled blind pool funds or gaining investment exposure on a deal-by-deal basis.  However, while sponsors have offered investors significantly increased exposure to select investment opportunities through co-investments over the last five to ten years, this has typically been in consideration for an initial primary investment in their flagship fund.  Set out below is a summary of the main characteristics of the deal-by-deal model, which has grown in popularity over the last few years, along with some commentary on our experience and possible future trends in this sub-sector.

Raising capital

With fundraising challenges being well documented in the last few years, particularly for sponsors below the largest and most established bracket, it can be enticing for existing sponsors to instead look to pivot to deal-by-deal capital raising activities in the short-term.  It is also an attractive proposition for new sponsors who are looking to develop a track record and make several investments ahead of commencing formal fundraising for a new blind pool strategy.

Private equity funds worldwide secured $680.04 billion in 2024, a 30% decrease from $966.37 billion raised in 2023 (source: S&P Global: Global private equity fundraising sinks for 3rd straight year). The amount of capital raised has declined since 2021, when it peaked at c. $1.12 trillion. Bucking this downward capital raising trend in the private equity sector, the capital deployed by deal-by-deal investors was a record $31 billion in 2023, representing a 400% increase from 2019 figures (source: Triago).

Pros and cons

Set out below is a summary of the main benefits of the deal-by-deal model from an investor's perspective:

• Tailored portfolio: investors can build a customised portfolio that aligns with their risk appetite and strategic interests, and start to develop a relationship with new sponsors over a period of time.  
• Enhanced due diligence: investors have direct involvement in deal selection, which enables them to conduct their own detailed due diligence on each investment opportunity.
• Potentially higher returns: with careful selection by investors, deal-by-deal investments can yield higher returns by targeting high-performing assets without being diluted by underperforming investments.
• Lower fees: investors can benefit from lower economics (management fees and caried interest) and a wider range of custom terms compared to a typical blind pool fund arrangement.
• Timing: as investments are pre-identified, investors can put money to work straightaway and not have to ring-fence capital pending future capital calls.

At the same time, not every aspect of the deal-by-deal landscape is beneficial to investors. They need to be mindful of certain considerations, such as:

• Risk:while there is greater opportunity for outperformance on a deal-by-deal basis, it also comes with considerably more risk compared to an investment in well-diversified blind pool fund.
• Resources: the process of evaluating specific, pre-identified investments involves greater resources and a more time intensive diligence process.  Not all investors have the depth of team and/or experience, or inclination, to do so.
• Economic terms: although headline management fee and carry rates can often be below the standard 2 and 20 typically found in a conventional private equity fund, it is common to see managers charge additional fees, such as transaction or monitoring fees.  The justification often being that managers of deal-by-deal structures, especially at the emerging manager segment of the market, do not have the management fee income of a larger blind pool fund to fall back on.

Sponsor considerations

Emerging managers in particular can be drawn to offering the deal-by-deal approach initially as they seek to build their credentials in the sector and demonstrate a track record.  In addition to potentially increasing capital inflows, deal-by-deal sponsors can avail of greater and quicker gains through carried interest on a successful exit than would often be the case in a multi asset fund, which can also act as a means of attracting talent.  In addition, proceeding down the deal-by-deal route enables sponsors to cultivate an established pool of prospective investors for when they are ready to launch their inaugural commingled fund. This can often be critical to the success of the fundraise.

There are obvious reasons why sponsors tend to opt for blind pool fund arrangements when their businesses reach a certain scale, however.  If portfolio companies requiring larger investment amounts are being targeted, it may be necessary to arrange funding through a vehicle with greater deployment capabilities and with committed capital in place.  Also, as the business grows, the sponsor is subject to a greater range of overheads and expenses, including personnel and regulatory/compliance requirements, and therefore having the benefit of a higher management fee charged on committed capital can be essential for operational purposes.  It is worth noting that raising a blind pool fund isn't getting any easier, as LPs continue to invest in the largest, most experienced funds – in 2024, the 10 top funds in capital raised attracted 36% of capital, with 98% of capital being invested with experienced managers (source: Bain & Company, Private Equity Outlook 2025).

Hybrid arrangements

There is also cross over between the fund and deal-by-deal models, with sponsors increasingly offering single asset co-investment opportunities to their fund investor base alongside their blind pool funds.  Fund investors in the private equity sector have become generally more discerning with respect to the portfolio companies to which they are seeking exposure, and the value that co-investments offer investors (often fee and/or carry free or much lower than the main fund) alongside the fund can be compelling.  Similarly, in a formal deal-by-deal model, sponsors can sometimes afford to offer lower management fee rates (including charging on an invested capital basis) and carried interest rates to investors than otherwise through a conventional fund.

As a hybrid approach, some sponsors (including those with established deal-by-deal businesses) are raising their first commingled fund in the form of an umbrella structure, such as a PCC, ICC or limited partnership.  The umbrella structure can have segregated series or cells, such that a separate series is created for each portfolio company investment made, with different investors able to participate across different series.  

There can, if desired, also be an aggregate investment series for investors who wish to be exposed to all portfolio companies in which the fund invests, i.e. the commitments in that series are allocated to the other series in fixed ratios.  This allows managers a degree of committed capital on a partially 'blind' basis.  The segregated portfolio fund model is well established in other sectors but less often seen in the lower mid-market and rarely is there an aggregated/commingled pool provided for within the same fund vehicle.

Future developments

We expect that managers will continue to gravitate towards the traditional blind pool fund structure, especially where they are confident of a successful fundraise, for the reasons mentioned above.  However, it is not lost on investors that dry powder in private equity funds remains significant and above $2 trillion globally as of 2025 (source: McKinsey & Company, M&A Annual Report: Is the Wave Finally Arriving?).

With challenging market conditions set to continue for the foreseeable future, the certainty of deal allocation through sponsors operating deal-by-deal models may pull increasing numbers of investors in this direction, particularly as the private equity (and private credit) sectors become more mature and comprise larger proportions of investors' portfolios.  Greater numbers of managers, especially emerging managers or those spinning-out from established businesses, are increasingly adopting this route, and a larger number of investors have now become alive to the benefits afforded by the model.  Accordingly, it would be remiss of sponsors and investors to fail to give due consideration to the deal-by-deal model, even if as an ancillary aspect to their fundraising activities/investment programmes.  

At Taylor Wessing we have a specialist Private Funds team advising a wide range of fund sponsors on the formation, structuring and negotiation of their investment funds as well as major institutional investors investing across all investment fund strategies. If you have any questions about raising or investing capital on a deal-by-deal basis,  or fundraising in general, please don't hesitate to get in touch.