Stonepeak paying out existing LPs
Saw this article and shocked that Mike Dorrell is truing up Fund I LPs to hit their promised 11% net return (a 2012 vintage fund). Thought this was absolutely wild. I've not seen this for any other infra fund but curious if anyone's seen this in the PE space. Assume it's happened before but this sets a scary precedent.
Article says they're at $10bn on their latest $15bn target fund but they've definitely been in market for 3+ years. Idk why this would make existing LPs re-up to their latest fund. This is embarrassing. Makes me think the GIP guys really made out like bandits.
Maybe he thinks 50% of his unrealized carry is worthless…
Based on the most helpful WSO content, the situation with Stonepeak's founder, Mike Dorrell, halving his unrealized carry to boost Fund I LP returns is indeed unusual and has sparked significant discussion. While it's not unheard of for GPs to make concessions or adjustments to maintain LP relationships, this specific move—truing up LPs to hit a promised return—is rare, especially in the infrastructure private equity space.
In the broader PE world, such actions are not common practice. Typically, fund performance is what it is, and LPs bear the risk of underperformance. However, this move could be seen as a way to preserve reputation and encourage LPs to re-up in future funds, especially if the fund is struggling to hit its target raise. That said, as you pointed out, this could set a concerning precedent, as it might lead LPs to expect similar concessions in the future, potentially undermining the traditional risk-reward structure of private equity.
The comparison to GIP (Global Infrastructure Partners) is interesting, as they have been known for their strong performance and ability to raise large funds quickly. If Stonepeak is struggling to close their latest fund after being in the market for over three years, it could signal challenges in maintaining LP confidence, especially with moves like this being perceived as "embarrassing" by some in the industry.
This situation highlights the importance of fund performance and trust in GP-LP relationships. While Stonepeak's decision might help salvage relationships with existing LPs, it could also raise questions about their ability to deliver consistent returns, potentially impacting their reputation in the long term.
Sources: No PE in my PA, LPs/Investor Return Structure, https://www.wallstreetoasis.com/forum/private-equity/thoughts-on-stone-point-capital?customgpt=1, BlackRock Raising a $10-$20bn direct PE investment fund, “Long Term Private Capital”, SoftBank Vision Fund / GIC / Temasek
My understanding is that it’s a pretty clear quid pro quo w the anchor LPs in fund 1 who are disappointed with the firms first three funds. True up their carry and in return they come into fund 5 and continue to support the franchise across other products in a big way. His calculus is definitely that he stands to make even more if the firm continues its growth trajectory which is now in doubt given performance.
LPs are definitely also aware dorell put a ton of cash in his pocket from the GP stake sale and kind of ridiculous how rich he’s gotten given fund 1 didn’t make carry, fund 2 barely made carry and fund 3 is barely in the carry but trending towards falling below pref if things keep going how they have been. Fund 4 too young to tell still.
Very interesting insight - how much of his stake did he monetize? What did he walk away with?
Their LPs are moronic. Do they not see the BS.
Not to be a stonepeak apologist because obviously agree their performance is lackluster at best but at the time that they were raising their fund 4, funds 1-3 all were top quartile infrastructure funds (fund 3 was on track to be one of the best performers in the entire sector). It wasn’t until they wrapped up fund 4 and started raising for 5 that these issues started. Hard to blame LPs and clear that now people are taking the appropriate amount of caution given how badly their fund 5 raise is going.
To your knowledge, is it just from the mgt fees he has gotten so rich then if the funds have not acheived carry?
Fees definitely help but, as I mentioned, primarily that they sold a minority stake of the GP to blue owl at a massive valuation and founders all put 1bn+ cash in their pockets pretty sure
The fees help generate the overall firm value. Just look at how the megacaps are trading on FRE. Stonepeak FRE is probably decent given their $10bn+ flagship funds.
It’s also a terrible look that the founder has been publicly buying up trophy properties while funds are performing like crap.
Makes sense- thanks. Although what doesn't make sense is that Blue Owl didn't do better DD before buying the minority stake.
Astounding how they keep snowballing in size despite the abysmal performance.
LPs have only themselves to blame. Reward mediocrity (if we are being generous) and that’s what you’ll get in droves
Came across them on deals before. The most bureaucratic and clueless team I’ve encountered in a long time.
Agreed - Oregon State - deployed with them FOUR times - surely you'd know after 2.
Utterly stupid.
Dang I really thought promoting a bunch of 20 something year olds to principal in like 4 years was gonna work.
One of the stupidest firms i have ever come across, we partnered with them on an asset and they had no idea what they were doing. Heavily dependent on buyside advisors to guide their work. LPs should be ashamed of themselves for continuing to fund the CEO's real estate buying spree. I knew performance was bad but was stunned at just how poor it is, very confusing how they have even raised $10B under these circumstances
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Can't access the article but according to Pari Passu, their net returns were
They made out like bandits LOL
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Bureaucratic is right - disorganized, grindy.
I was shocked to read this seeing given how fast they’ve hit $75B.
This is really quite unprecedented across the industry. Had friends on the buyside (tag outdated) that mentioned how great their funds were back in the day (Lineage comes to mind), but guess those investments haven't been panning out. Took another look at Lineage now and oof that price chart is crazy.
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