News & Analysis

driven by the PitchBook Platform
gettyimages-1223138205.jpg
GP Stakes

New shades of GP stakes expected in 2024

Investors remain optimistic about GP stakes deal volume in 2024 following a sluggish Q3.

GP stakes lost some momentum in 2023, but their appeal to investors remains intact.

The transaction type, where dedicated GP stake funds buy minority shares in other GPs to gain indirect exposure to their fund returns and balance sheets, lost steam in 2023. But moving into the new year, GPs and LPs alike are optimistic about deal flow and foresee an evolution in how those deals are financed.

Deal activity involving GPs as targets took a hit in the first 10 months of the year, with deal count down 8.3% and deal value down 25.3% from 2022’s full-year total, according to PitchBook’s Q3 2023 US Public PE and GP Deal Roundup Report. In Q3, 18 deals targeted asset managers, only five of which occurred through a GP stake.

Despite the lag, which mirrored the rest of the private markets, GP stakes deal volume saw an uptick in the first weeks of Q4, and industry players remain optimistic about the market’s continued growth in 2024.

For GPs, a sale of a minority interest in their business can provide an infusion of capital that can help with fundraising and dealmaking.

“It’s taking time for the funds and the GPs to digest the new normal in fundraising and agree on a bid-ask while taking into account that going-for purchase projections and growth rates are more modest than they were prior to the slump,” said Alex Russ, head of North America for Evercore‘s private funds group.

 

Still, some deals got done this year. In May, Blackstone‘s GP stakes team acquired a minority stake in a $6.2 billion growth equity firm called FTV Capital.

In Q3, Blue Owl invested in Stonepeak, an infrastructure and real asset manager with over $55 billion in AUM, and this quarter Bonaccord Capital Partners, a GP stakes specialist, acquired a minority stake in Revelstoke Capital Partners, a healthcare-focused PE firm.

The evolution of GP stakes

The purchasing of ownership and nonownership stakes in asset and wealth managers traces its roots back to the early 2000s. Since then, the market for these investments has expanded, driven by rampant consolidation in asset management and continued fundraising challenges, and prominent firms like Blackstone and Blue Owl have developed programs dedicated to investing in their peers.

In September, Blue Owl’s Dyal Capital began fundraising for its sixth fund dedicated to GP stakes with a $13 billion target, Bloomberg reported.

Activity in the GP deals space peaked in 2015 at 90 transactions with a combined total of $18.7 billion, according to PitchBook data. And despite the lag in Q3 2023, Q4 is off to a promising start with 10 deals either announced or completed in November.

Bounce back expected

Industry players are optimistic about future activity. The pipeline for GP deals is ripe and bogged down with managers hoping to sell a stake and buyers looking to deploy capital, said Mustafa Siddiqui, head of Blackstone’s GP stakes business.

“We’re looking at a loaded spring in terms of deal activity,” he said. “We know of many, many firms that are interested in or have already made the decision to sell a stake.”

Tim Tracy, who leads EY‘s private equity practice in the Americas, said his team has received feedback that the industry expects a resurgence of GP stake deals in the next year or two.

“The money can only stand on the sidelines for so long, right?” Tracy said. “In a more stable environment, the deployment of capital for GP stakes will have to come around.”

Anthony Maniscalco, head of Investcorp‘s strategic capital group, expects deal flow to continue to expand in North America and into Europe and Asia.

In May, Maniscalco’s team partnered with investment firm Capital Constellation to buy a small stake in London-based MML Capital.

Maniscalco said the high demand for capital from GPs, positive LP sentiment regarding GP stakes and historically strong performance of dedicated funds have created an optimal environment for these deals to take place.

Creative solutions

Despite challenges in 2023, Evercore’s Russ said the structure of these deals is undergoing an evolution: While traditional GP stake deals will remain a prevalent type of transaction, GPs are increasingly exploring alternative methods of generating liquidity without giving up permanent equity ownership in their businesses.

In 2024, Russ said he expects more firms looking to buy parts of their peers offering up “creative solutions” as an alternative to traditional finite stakes.

“Private equity firms are increasingly realizing they have a lot of collateral they can pledge for liquidity as opposed to giving up equity ownership in the business,” he said. “This creates the potential for more structured equity type solutions that may be a better fit for certain GPs.”

Maniscalco agreed, adding that while GP stakes investors invest in equity stakes, asset managers in their portfolios are also open to other types of capital infusions, like preferred equity and debt.

“As these businesses evolve, they’ll have more typical capital structures,” he added.

Featured image by MirageC/Getty Images

Join the more than 1.5 million industry professionals who get our daily newsletter!