Hot! Hot! Hot!

The large-cap market for GP-stakes is overheated, according to a recent article by the Private Equity News entitled “Buyouts’ GP-stakes bet raises concerns” (see https://www.penews.com/articles/buyouts-gp-stakes-bet-raises-concerns-20190819). 

More than $17 billion has been raised for GP stakes, and another $20 billion is in the process of being raised by leading market participants, such as Blackstone, Dyal and Petershill.  These firms are generally seeking to invest between $300 million and $500 million per manager.  To avoid significant dilution of each investee GP’s incentive to perform, the stakes purchased have typically been in the range of 10% to 15% of each GP, implying an equity value for managers in the range of $3 billion to $5 billion. 

The number of general partners worldwide that are large enough to be valued in the range of $3 billion to $5 billion is probably less than 150.  Moreover, a high percentage of these mega-size managers have already sold stakes in their GPs.  Where is all the new capital being raised going to be invested?

While this article may or may not be predictive, as noted in earlier Meteor5 commentaries, the GPs who are selling their stakes are very shrewd investors who are unlikely to sell personal stakes in their firms at anything less than top dollar, so “buyer beware” should be the watchword in this market. In addition, the stakes investors are buying are “permanent,” with no pre-defined exit options.  That’s what we call a long-duration asset!  In the old days of private equity investing, limited partners generally preferred to invest in vehicles with defined terms and some clarity of getting their invested capital back (with a profit!).   

As noted in the article, Meteor5 Capital invests in proven emerging general partners.  Our investee companies generally seek capital at a time when they can really use it – to develop their businesses, hire talent and increase their GP commitments/stakes rather than selling down their personal interests.  That’s a dynamic we greatly prefer.  Moreover, since Meteor5 is the first to offer this type of financing to new firms this market is not awash in capital!

If you would like to see more high-quality managers sooner, please reach out to us. We are committing to exciting managers with waterfalls designed to get your capital back within a reasonable timeframe. 

We can help you escape from the heat.