UK asset managers are ripe for GP stakes transactions – Morgan Lewis

GP stakes managers, sovereign wealth funds and insurers want to purchase more market share in the UK’s fragmented alternatives investment industry, according to a panel hosted by the law firm.

The alternative assets industry in the UK offers plenty of opportunities for GP stakes deals, a panel heard this week at a funds investment conference.

“The UK market still remains highly fragmented – the top 10 managers account for only about a third of total market share… there remains real opportunities for buyers in terms of consolidation and for firms to sell stakes in businesses as the industry continues to consolidate,” said Robert Goldbaum, a partner at law firm Morgan Lewis, during the firm’s Private Investment Funds Summit on Monday.

Goldbaum also noted that his firm is increasingly seeing their private investment fund clients’ “desire to institutionalise their firms in advance and in anticipation of the possibility of a future sale”.

UK-headquartered private equity firms that have received GP stakes investment include BC Partners, Permira Advisers, Pollen Street Capital and Bridgepoint, owner of PEI Media.

Find out which funds have bought into firms here.

GP stakes-focused managers raised nearly $20 billion between 2015 and 2019, according to data from PitchBook. TPG launched a GP stakes strategy targeting diverse managers in mid-March.

Minority stakes transactions involving PE managers have become the most prevalent type of deal in recent years, helped in no small part by the tremendous part of capital available to buy stakes in alternative firms, Goldbaum noted.

Institutional clients are also continuing to push firms towards institutionalising their businesses, building out product offerings and diversifying team and talent, he added.

“We continue to see sovereign wealth funds continue to be very active in this space and interestingly insurers are deploying general account money not only into the underlying alternative products but also to buy minority stakes themselves on a direct basis. We are seeing particular interest in private credit, real estate and other long-term fund structures,” Goldbaum added.

There are a number of important elements to consider when selling a stake in a private investment firm. These include the time horizon for payment and conditions or metrics for achieving earn-outs, the treatment of the buyer’s contributed assets under management, the monetisation of carry, as well as retained autonomy with the buyer and governance in these transactions, among others, according to a presentation by Goldbaum.

“There is an ever increasingly standardisation around types of governance buyers seek in these transactions and what sorts of consent rights and affirmative governance rights you give to somebody who owns a strategic minority stake,” said Goldbaum.

Other important considerations in GP stakes deals include the capital commitment buyers are going to make to the firm’s future products; how much access the firm is going to get to the buyer’s investor base; and how the minority stake partner is going to monetise their equity over time.

See a list of the potential targets primed to receive GP stakes investments here.