Why GP Stakes Investing is Gaining Momentum

By: Gridline Team | Published: 02/22/2024
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2 minutes

Similar to how a buyout manager would provide capital and expertise to a portfolio company in exchange for equity in the business, GP Stakes investors provide capital and expertise to General Partners (GPs) in exchange for a minority stake in the underlying management company and its GP entities (their funds). The GP Stakes Investor receives a share of future cash flow from net management fee revenue and profits, incentive fees, GP co-investments, and balance sheet realizations. GPs use the capital to help grow the firm by meeting co-investment requirements for upcoming funds, succession planning, or developing new strategies.

There are some unique aspects to GP Stakes investing that set it apart from other private equity strategies:

  • Yield: This is perhaps the largest differentiator from typical buyout or growth equity investments. While most private equity funds do not return capital until investments are exited, investments in GPs can produce cash flow by contractually collecting a portion of management fees from the GP. 
  • Diversified exposure: Just as one can diversify through investing across asset classes, GP Stakes funds often offer investments in GPs across various private asset classes, as well as firms that focus on larger, middle-market, or smaller managers. 
  • Downside protection: GP Stakes investing offers downside protection because management fees from the underlying firms are locked in for 10+ years on closed-end funds. The risk-return tradeoff for GP Stakes funds is often more similar to real estate or mezzanine strategies than to buyout or growth equity.

Ultimately, the investors in this strategy are rewarded when GPs and their funds perform well – raising larger funds, returning to market sooner, achieving better results, and charging higher fees. If you want to learn more about the ins and outs of GP Stakes investing, read our blog post on the topic.

Gridline enables you to invest with top-tier fund managers across private credit, venture capital, private equity, and real assetsBook a time to speak with a member of our team to learn more, or sign up in minutes by clicking the button below to gain access to the platform.

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