The California Public Employees’ Retirement System (CalPERS) was among the first large institutional investors to adopt the strategy of buying GP stakes back in 2001, paying $175 million for a 5 percent ownership in the Carlyle Group’s management company and another $60 million for a small stake in TPG Ventures (the mid-market/growth capital arm later renamed TPG Growth).
A number of fellow pensions and sovereign funds followed suit, as GPs sought to crystallise franchise values (in some cases ahead of a public float); LPs viewed it as a way to benefit more fully from firms’ successes across funds and business lines, without the fees. China Investment Corp’s purchase in 2007 of a stake in The Blackstone Group ahead of its NYSE listing was perhaps the emblematic transaction.
In 2007, CalPERS found its ownership in Carlyle diluted to 4.1 percent, in part due to the fact more LPs wanted in; Mubadala, Abu Dhabi’s sovereign wealth fund, paid $1.35 billion for a 7.5 percent Carlyle stake. Led at the time by former CIO Russell Read and ex-private equity head Leon Shahinian, CalPERS continued to purchase GP stakes: in 2007, it paid $600 million for an 8 percent stake in Apollo Global Management, and the following year bought a 9.9 percent stake in Silver Lake Partners, reportedly paying $275 million.
But the leaders who were recruited post-Read and Shahinian to clean house and restructure the private equity portfolio – CIO Joe Dear and private equity head Réal Desrochers – have clearly reversed course.