Coller: LP appetite for GP stakes ‘disproportionately large’

Almost 40% of LPs have already invested or will consider investing in funds that take stakes in GPs, according to Coller Capital’s latest Global Private Equity Barometer.

Investor demand for vehicles that acquire stakes in general partner management companies is “disproportionately large” compared to other strategies, research suggests.

At least 17 percent of limited partners have already invested in GP-interest vehicles and a further 19 percent will consider doing so in future, according to Coller Capital’s Global Private Equity Barometer. The report surveyed 112 private equity investors in North America, Europe and Asia-Pacific, including asset managers, insurance companies and public pensions.

“Investing in funds of firms is quite a niche strategy,” Remco Haaxman, partner at London-based Coller, told Private Equity International.

“If you think about the size of the market, how much capital can be allocated to private equity and how much of that can be allocated to that very specific area of investing in GPs, there’s obviously limited capacity. I’d argue that 17 percent of investors is disproportionately large for the opportunity.”

Last week, Neuberger Berman’s Dyal Capital Partners and Goldman Sachs’s Petershill programme completed a minority investment in private equity and special situations house Clearlake Capital Group. The capital will boost Clearlake’s GP commitments to its funds and back new business initiatives, according to a statement.

Dyal is among the busiest players in the GP-interest space, with at least 13 private equity managers in its portfolio. The firm is aiming to wrap up its fourth fund for the strategy at the end of the month after holding a second close on $4.9 billion in April, PEI reported.

US sovereign wealth fund Alaska Permanent Fund Corporation is a big proponent of these vehicles, committing $550 million to the $5.3 billion Dyal Capital Partners III and $500 million to the $3.3 billion Blackstone Strategic Capital Holdings, which completed three GP-interest deals in March.

“We think this is a juicy strategy,” APFC’s head of PE Stephen Moseley told PEI in November. “The purchase by LPs of GP stakes has been around for a long time, but with the advent of funds targeting this strategy, the institutional floodgates have opened.”

Some GP-interest funds will employ evergreen structures. One example is the $200 million vehicle set to be launched by Pennsylvania-based Rosemont Investment Partners this year.

However, it is unclear how the more traditional of these funds will seek to exit their investments. Potential routes include a dedicated secondaries market or sale to partners within the portfolio firms.

“As funds of firms is a relatively young strategy there’s no specific answer on exit routes,” Haaxman said. “But one reason why funds of firms make these investments is because they can serve as a transition between an existing generation of senior partners that are in the process of stepping aside, and younger partners who will buy their stake after making the money to do so.”