Recently came across GP stake investing strategy. Haven’t seen much information but believe the main players are GS, BX, and Dyal. Can anyone explain the difference between GP stake investing vs fund of fund? Thoughts on going into GP stake investing vs traditional PE?
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I am generally skeptical of the exit strategy and would not personally consider it. Anecdotally, many of the GP's I've talked to that have sold stakes have said something along the lines of "we had never considered it, but then we saw the number." GP stake investing receives income from management fees charged to the GP's fund(s) and not many deals participate in the GP's carry, from what I understand. Fund of funds participate in the same economics as LP's. Private GP stake investing is a new strategy that will likely grow over the next 10 years as a result, whereas I anticipate FoF to decline - given the lackluster returns. I'd search for greener pastures but, to answer your question, GP stake > FoF.
I like your reasoning. Re FoF, I have seen an trend towards more Co-investments and Secondaries.
Would both (Co-inv and Secondaries) the only way FoF can survive? If not, what would be a possible path?
The strategy isn’t premised on exiting.
GPs are pure profit companies. Management fees + carried interest across funds flow into the GP. Pretty much 0 cost (salaries etc. are borne by the Funds).
If you can get a stake in a performing GP, get it. It's almost as if you made Partner.
If you're a GP and you've been approached with this - think twice.
Yeah, that's not how it works. Salaries - base and bonus, and all overheads including rents for those fancy offices in high COL cities all come off management fees.But I do agree it can be very lucrative if you pick the right partners.
Think you misunderstood my point. Yes salaries etc. are paid for by the mgt fees, but typically VCs are in the black just from mgt fees alone. And this is even more true of firms that stack funds. The profit from the mgt fees flows into the GP mgt co. which has 0 cost at the mgt co. level - as explained previously the salaries and mgt fees are paid for at the Fund level, not the mgt co. level. So in essence the mgt. co is a pure profit business.
Buying a piece of mgmt fees / carry. Boring but probably very profitable if you pick the right partners
Real question should be - how many good firms are out there that haven't taken GP stake money? There realistically are not that many UMM firms left that haven't / sold a stake / gone public. The ones that remain typically have a good reason not to.
Just from analysis perspective, I would think that the work/analysis in GP stake investing is actually quite boring. You're just modeling out what you think the future AUM of a GP will be, minus head count growth.
FoF would be more interesting, IMO.
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