GP stakes investing
Know there have been a handful of topics on this but thought it was worth raising again as the space is really booming recently. What are the board's thoughts on joining a GP stake investing firm (e.g., Dyal, GS Petershill, Hunter Point, Blackstone Strategic Capital)? In light of private capital continuing to swell across all alternatives (RE, infra, PE, credit), it feels like an interesting place to position yourself longer term, perhaps after a few years in a more conventional PE seat when you feel more comfortable as an investor. Idea being that over time, you develop a really strong network across a wide swath of asset managers, learn how to assist with capital formation and fund marketing to LPs, while also refining your investing skills. I always like to look for waves to ride on the horizon, and this feels like one that will continue to expand as alt asset management matures over the coming decades. Could getting in on the ground floor of one of these places be an interesting long-term play vs. the highly competitive traditional PE path?
I think it's a very interesting, emerging field. GP stakes in good funds have very attractive return profiles - little to no cost basis; consistent cashflows from management fee across multiple funds and vintages independent of the cycle; kicker from carry. Work-wise I would expect it to be less typical PE, more like Secondaries (i.e. fund-level modeling and review of underlying assets) combined with some more strategic expertise like you mentioned (capital formation, fund marketing,...). I haven't worked in PE professionally but compared to combing through the financials of some diversified industrial company, I would expect it to be a bit more standardized and generalized (i.e. modeling expected fund cashflows over the next ten years, make estimates about the fundraise, estimate expected carry on the basis of historical returns, and subtract expected costs).
However, three challenges I see:
- Very specific skillset - besides individual GP stake acquisitions (i.e. by FOs), GS, Dyal and BX dominate the market. I think there will be more players entering the market, but that just makes it more competitive (see next point). So overall number of funds with that strategy will be limited. Maybe you can pivot into some related roles later on (i.e. Fundraising, Investor Relations, COO Role in a GP firm) but I would find it hard to apply that skillset on the investing side in another investing role, unless you can go into a niche (i.e. doing that just for RE or VC).
- Competition - The universe of potential targets just isn't as big as it is in regular PE/VC, and the better firms will get a lot of offers from the aforementioned players for stakes in their funds, which pushes up prices. At some point, I can see most major firms having sold a stake. Of course there is some further turnover (i.e. new managers entering the field), but with PE/VC getting more and more competitive as people shift into alternatives, I'd be concerned that investing moves downstream (i.e. early secondaries to help growing firms earlier with their expansion).
- Exits - There are some smart ways to exit GP stake portfolios (i.e. what GS did with its sale to AMG), but on individual fund level stakes, I am not 100% sure who the final buyer would be, unless you go public - which BX, KKR etc. have done but those are considerably larger platforms.
Market is almost fully penetrated on the UMM side and the outliers are purposely not taking GP stakes . . .
Very helpful - thanks
What is comp like in GP stakes?
Also interested in comp
Pretty sure GP stakes investing is gonna come to a screeching halt soon. The new SEC rule will trigger a fund review anytime a GP stakes deal is completed, which will likely cause most funds to not be as willing to do these types of deals as much anymore. I’d be cautious if you’re thinking about making a career move into the space if I were you.
This is really helpful, thank you. I had no idea.
Anyone have rough comp ranges for GP Stakes?
It's also worth considering whether or not you'd enjoy looking at PE/alts firms all day. Unlike general buyout, you're focused on a specific niche sector.
Me personally, I would find this more boring than traditional PE Fund of Funds investing
I’m fine with that. Mainly interested in comp, hours, and career flexibility.
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