Anatomy of GP Stakes White Paper

Key takeaways

• A larger number of diverse investors are allocating to GP stakes due to increasing familiarity with the asset class, the strategy’s cross-cycle track record and a heightened focus on DPI.
• Investors who are less familiar with the strategy often ask how they should classify GP stakes within their portfolios and what the closest comparable investment might be.
• Individual components of a GP stakes strategy have been likened to private equity, private credit and secondaries strategies, with these combined characteristics offering investors a differentiated returns profile that is arguably impossible to replicate in any other single investment.
• The cash flow returns from a GP stakes investment, which come from management fees, carried interest and balance sheet returns, can be further bifurcated into (i) legacy cash flow from existing, in-the-ground funds and assets, and (ii) future cash flow from the GP’s continued fundraising and investment activity.
• With larger, more established GPs who have numerous legacy funds and billions of dollars of in-the-ground assets, accrued carry exists that will convert to cash when harvested.
• The ongoing nature of a GP stakes portfolio allows investors to build returns over a long-term horizon, compounding an even larger MOIC.
• We believe a GP stakes investment can be viewed as the acquisition of recurring management fees, a continuously refreshing secondary position in the funds managed by the GP and upside potential from both carried interest and the potential realization of the equity value in the firm, should a minority position or the firm itself be sold over time.