Innovative structuring or pass the parcel? GP stakes’ new playbook
As GP staking firms come up with novel ways to provide exits to investors, the burden will be on them to show such efforts are worth it in the long run.
Over the past decade, many private equity strategies have followed a similar model: acquire assets at a reasonable valuation, execute a value creation plan and eventually exit at a higher price.
For GP stakes firms, the process has been more nuanced. While exit options do exist – debt-financed dividend recapitalisations, single-asset sales, portfolio-level sales or public listings, to name a few – these managers position themselves as permanent or long-term holders of the minority stakes they acquire. This is key to winning over many of the firms they seek to back.
Exits have long been a point of contention. GP stakes funds are marketed on the promise of a steady stream of income coming from underlying GP management fees – something that should appreciate as the underlying managers raise larger funds along predictable timelines. In today’s challenging fundraising environment, however, this playbook has been somewhat thrown off course.
Blue Owl Capital , a pioneer in this space, is among those seeking to address the problem. The firm has launched its first continuation vehicle to provide liquidity for investors in its 2016-vintage Blue Owl GP Stakes III, as PEI examined this week. The transaction is understood to be a proof of concept that could be replicated across other vehicles.
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