Co-investing is pretty epic for everyone because 1. The fund gets more money 2. It aligns incentives between employees and the fund they work for - of course if you have money at stake then you probably want to work harder and care more. And above all, stay a long time in the fund so you can probably keep co-investing in other funds that will open later.

You commit capital to a fund. Let's say you commit $20k. As an employee, you get to invest carry free and management fee free which is a pretty epic incentive.

You don't give up $20k right away - you wire the fund money when they complete capital calls. Capital calls happen when the fund needs money to fund an investment. Usually they already have a line of credit with a bank to borrow funds immediately from, but they do actually need the money from LPs and you, so they'll send you a capital call letter asking you for a percentage of your commitment that is proportional to how much the fund is investing. You wire that. If a fund is deploying quickly, you might send money 8 times a year (arbitrary number). If not, then maybe just 2-3 times - it really depends and varies by fund type and deployment speed.

Example: Commit $20k. Capital call for 10% of a $100 million fund. You wire the fund $2k. Capital calls continue for 3 years until the fund is fully deployed and you have wired your full $20k. You start getting distributions 2-4 years in, for a total of around 10 years. The fund in total returns 3x. That means you get $60k back. You make $40k, excluding fee expenses.

Now. Let's say your fund offers you a leverage opportunity. Some funds will give you a 1:1 match, some like Silverlake will give you even more like 3-4x leverage. Leverage is great because you get to borrow at the rate that the fund gets, which is usually very low. This means that the when you commit $20k, let's say the fund offers 1:1 matched leverage, you are technically investing $40k into the fund.

So when the fund returns 3x, you get $120k back, excluding fund expenses and interest repayment. $120k-20k leverage-20k investment=$80k. This means that you make $60k. That's quite a bit more than $40k, don't you think?

If you invest more, let's say $100k and then lever that up to $200k, if the fund returns 3x then you get $600k-$100k leverage-$100k investment=$400k. That's pretty insane.

You invest $20k and lever up to $60k. You get $180k-40k leverage-20k investment=120k back on your original investment. That's quite a bit more than $40k! And if you invested $100k and levered up to $300k, then you'd get $900k-$200k leverage-$100k investment=$600k back on an $100k investment. You can see how the money scales... Of course keep in mind this is net of fund expenses and interest repayment.

Some funds will charge a rather arbitrary % to later investors to compensate for the risk earlier investors took on by investing in the beginning, but of course there is always an argument of that particular % being higher or lower than returns/valuations of the earlier fund investments. Basically, join a fund that allows co-investing right when they raise a new fund but haven't closed it yet if you can! Usually funds hire when they raise new funds anyways.