13 May 2020
Investcorp today released a new white paper, “The Case for Minority Equity Investing in Mid-Sized Private Capital GPs,” analyzing the potential benefits and growth opportunities of “GP Staking” – the process of acquiring a minority interest in the management companies and general partnerships (“GPs”) of alternative asset managers.
Over the last several years, increased allocations and demand from global investors to access private asset classes has driven the emergence of the GP Staking industry. Authored by Anthony Maniscalco, Managing Partner and Head of Strategic Capital Group (“ISCG”) at Investcorp, the paper outlines expectations for GP Staking, anticipating that there will be a continued rise in stake sales as the strategy remains early in its lifecycle and the belief that current market conditions will increase demand for more permanent forms of additional capital from GPs, especially amongst mid-sized managers.
The paper analyzes the potential benefits of GP Staking for GPs and LPs and why the structuring, rationale and partnership between the GP and minority investor are critical to any success.
Anthony Maniscalco said, “GP Staking can provide numerous benefits for all parties involved. For GPs, a stake sale can be an effective way to raise growth capital while also providing strategic benefits to support the firm’s longevity through access to greater scale and resources, optimizing ownership structures and/or having an engaged and experienced minority partner to support its broader business objectives.”
Timothy Mattar, Global Head of Distribution and Investor Relationship Management at Investcorp said, “For LPs, these stake sales provide the opportunity to access the long-term secular growth of alternatives with greater exposure to the GP and its’ overall cash flow generation compared to investing as a LP in a fund. However, the real potential value creation of GP Staking occurs post-transaction through the collaboration between the GP and its minority owner to seek to grow the business to better meet and hopefully exceed the evolving needs of its clients.”
The white paper chronicles the evolution of the GP Staking asset class with a majority of activities to-date occurring among larger institutions. The average AUM of a GP seller from 2018-2019 was more than US $10 billion and ISCG believes there is growing demand for GP minority investing in the mid-sized segment of the market, which the white paper identified as a potential $90 billion market.
Anthony Maniscalco concluded, “We believe that investing in mid-sized firms, which is aligned with Investcorp’s focus on the middle-market for nearly 40 years, provides the most attractive opportunities for GP Staking. These firms are ideally positioned in their growth trajectories and can materially benefit from a supportive and engaged minority partner. Further, transactions with mid-sized GPs are also done on a more direct basis, thereby lending itself to more creative and aligned transaction structures with the potential of protecting downside and maximizing value creation.”
Launched in 2019, Investcorp’s Strategic Capital Group seeks to acquire minority equity investments in mid-sized alternative asset managers, with a primary focus on GPs that derive a significant portion of their revenue from the sponsorship and management of closed-end funds. Utilizing a disciplined investment process, ISCG seeks to identify and partner with businesses that it believes to be well-established, with successful track records and that are poised for growth.
For more information, download the complete white paper and infographic here.