In an increasingly competitive market, GP stakes investors face growing pressure to deliver strategic value beyond capital alone. For Thomas LaFond, an Asset Management Transaction partner at law firm Goodwin, the change in recent years has been particularly striking. “If you went back 10 years, GP stakes investing was focused on providing larger cheques to mature GPs and sponsors that had already raised a number of funds and had the exposure to the marketplace,” he explains. “The market is much broader now. GP stakes now encompasses a much wider mix of deals, involving firms at different points of development.” Instead, supporting growth in a GP’s enterprise value through to the point of exit is a cornerstone of the modern GP stakes model. “Any investor is always looking towards an exit at some point, and a lot of GP stakes investors are now raising their own funds, so they will have LPs that they have to answer to, and ultimately monetize investments for,” says Ranan Well, Asset Management Transaction partner at Goodwin.
Liquidity has always been a challenge for investors in GP stakes funds, who reap the rewards of regular cashflows from underlying GPs but have no clear path to exit. After all, a GP stakes investment typically delivers plenty of DPI, but these minority investors face some unique challenges should their LPs want out. As Jacqueline Eaves, a private equity partner at law firm Goodwin, puts it: “Any GP stakes fund looking at a liquidity solution now has a variety of options. The managers will want to consider what they are trying to achieve, what their timeframe is, what the alternative liquidity windows look like, and which jurisdiction they are focused on.” She adds: “Whether that’s a continuation fund transaction – which is a longer and more drawn-out process that is potentially more transformative – will be very fact-specific. But certainly, the market has become much more agile, and it is a very exciting time for this strategy.”
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