I am learning about the GP stakes space, and I was wondering if anyone had any experience modelling out GP stakes (middle market) and private fund managers. I understand that traditional fee only AM are valued on a EV/EBITDA basis, however, given the uneven cashflows of smaller managers, what industry standard metrics are used for valuing the carry portion of revenue? Any insight on this or anything that would be helpful for modelling a GP stake would be much appreciated.
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Interested to hear about this as well.
I have heard of the likes of Dyal, BX, GS and Constellation having dedicated GP stakes strategies.
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I worked on a deal or two in the space in like 2016/2017, so I would say this advice may not be worth more than a grain of salt. Since this thread seems pretty sparse, I figure even this little bit may be helpful. In short, the public markets seem to not value carry at all and somewhat try to value the businesses like these based simply off of AUM and the management fees associated with it. Then it’s just like a standard dcf or multiple of whatever the stream of fees is. Some can even do a quicker shorthand and like 1% of AUM or whatever is the value of the business. I’ve heard public market commentary that the carry is too unpredictable, ends up getting captured by employees or whatever. In practice, the deal or two I worked on with selling some GP stake to a Dyal, etc did involve some sort of valuation of the carry steam albeit separate from the mgmt fee stream. Rough memory was like the mgmt fee income stream was valued at like 20x earnings while the carry stream was valued at like 10x. There was some backup to support these numbers and comps and things like that. But I don’t remember too much nor did I work too much in that space in the first place. I hope this helps even just a bit. Best wishes and good luck :)
are the multiples applied to the income stream and carry stream based on the current year's cash flows? how do you account for a PE firm that is growing AUM quickly?
also for that deal you worked on, would you say that's more like a sum-of-the-parts valuation with a management fee stream and a carry stream separately?
GPs are typically valued off of blended DE (Distributable Earnings) multiple. DE is comprised of NFRE (net fee related earnings derived from aum), carried interest and GP income. Other common valuation approach is SOTP of the three income streams. NFRE is main driver as it gets like a 20-30x multiple as poster above mentioned. Carry stream and gp income stream are typically done on a DCF basis or haircut to accrued balance sheet value.
are the multiples applied to the income stream and carry stream based on the current year's cash flows? how do you account for a PE firm that is growing AUM quickly?
1. Go get a Merrill Edge account (not a shill, it's just the easiest way to get free sellside research)
2. Download their recent initiating coverage reports for BX, KKR, APO, etc.
Can anyone share a template of what a typical GP Stake model looks like?
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