As Assets Swell, GP Investors Look to Get Creative

This post was originally published and is credit to this site


As fundraising for general partner stakes in private equity firms continues to swell, investors are starting to consider what to do with that capital — and when to exit from those investments. 

Neuberger Berman’s Dyal Capital, Blackstone’s Strategic Capital Holdings, and Goldman Sachs’s Alternative Investments and Manager Selection (AIMS) Group are seeking a combined $17 billion to take minority stakes in alternative investment firms, according to a new report from PitchBook. 

But with such a large pool of capital, the three major firms are looking to diversify away from traditional buyout funds into venture capital, private debt, and real estate, according to the report, which was published Wednesday.What’s more, these firms are starting to consider whether it makes sense to keep capital permanently invested in these minority stakes, the report showed.  

Blackstone and Dyal Capital are looking to the middle market for deals, while Goldman is pursuing venture capital strategies, according to PitchBook. Spokespeople for the three firms did not immediately respond to an email seeking comment.  

And private debt, real estate, and secondaries could be next, according to PitchBook. While about GP six deals have taken place in the private debt market, few have been signed in the secondary market.  

“That’s the next frontier of where GP stakes are going to be heading,” said James Gelfer, senior strategist at PitchBook, by phone Wednesday.  

The secondaries market is quite similar to the traditional buyout market when it comes to GP stakes, according to the report. However, private debt and real estate funds have more stable yields, which can improve volatility in the investments, the report said.  

Another bonus? These funds tend to earn better management fees, which are then passed on to minority stakeholders, the report said.  

[II Deep Dive: The Rise of (and Risk to) Funds-of-Firms

When it comes to exit strategies, GP stakeholders have a few options. Smaller firms can do traditional strategic exits, the report said. But Goldman, Blackstone, and Dyal Capital are veritable behemoths by comparison, and likely won’t easily be able to sell off their minority stakes even if they wanted to, according to the report.  

But that doesn’t seem to be something they — or their limited partners — are interested in doing.  

“It seems like they’d rather stay invested for as long as possible,” Gelfer said, noting that sovereign wealth funds and other long-term capital providers are typically investing in these GP-stake funds. 

While they could consider listing themselves publicly to give LPs a liquidity option, the report said it is more likely that these funds will hold their GP stakes in perpetuity.