How GP stakes create long-term value for investors

What makes GP stakes an attractive investment?

GP stakes enable investors to share in the enterprise value of asset management businesses that are often created by their own commitments. Through GP stakes strategies, investors can gain an aligned and diversified exposure to a manager’s entire product offering and its business success. Participation in the fee income streams of an asset manager also provides investors with a strong cash yield profile. Lastly, in a crowded investment landscape, a GP stakes program can enable collaboration opportunities and differentiated relationships with leading managers.

How have GP stakes developed for LPs?

When we began investing in GP stakes over a decade ago, it was an innovative strategy that sought to better align investors with the asset managers they supported while providing diversification and cash yield within private markets. Today, the value of a GP stakes strategy in an investment portfolio has been proven and the market opportunity continues to expand.

What makes GP stakes a versatile strategy for accessing both established and next generation asset managers?

GP stakes investments are not limited to an asset class, geography, manager size, or prior investments. GP stakes strategies can also provide an avenue for investors to access next generation managers in a way that mitigates business risks through yield and equity ownership. In 2023, a reputable industry data source identified over 2,800 alternative asset managers with greater than $500mn of AUM that could be eligible for a GP-stake investment, which does not include the next generation managers that continue to enter the market and the follow-on investments made by GP stakes investors.

What are some of the common misconceptions around liquidity, and where do they stem from?

GP stakes can be long-term investments which has led to a misconception about liquidity. GP stakes can provide significant liquidity through distributions from the underlying asset and from a sale of the investment. As with other types of private equity investing, we work with strategic buyers, financial buyers, and in some instances even use the public markets to provide liquidity to our investors. At Wafra, since we invest across the life cycle of asset management firms, we have different levers that can be accessed for each of our investments. We’re able to dictate our own outcome and our own exit for our investors.

How do you add value in GP stakes?

We are a solutions provider to our manager partners. Our platform now includes nearly 30 GP stakes investments. This ecosystem and experience enable us to provide strategic advice and assist in implementing cross-functional and best practices. We are a strategic value-add partner for our GPs. That ability is further reinforced by a tight-knit asset owner community that provides unique insight into investor portfolios and the solutions they are seeking from GPs. We work closely with our partners to build enduring asset management platforms that can provide generational solutions for investors.

About
Adel A. Alderbas is the Chief Investment Officer at Wafra, where he also serves on the Management Committee and Board of Directors. Wafra's GP stakes strategy is twofold: investing in established firms through its own funds and in next generation managers through its Capital Constellation platform. Capital Constellation is an innovative investment program advised by Wafra and founded with a select group of premier institutional asset owners. Since joining Wafra in 2007, and subsequently as President of Capital Constellation, Adel has led investments to launch and accelerate the next generation of alternative asset management firms. Wafra is headquartered in New York and manages $28bn in assets, focusing on strategic partnerships, real assets, and real estate.

_{This article originally appeared in Strategy in Focus: GP Stakes. The opinions and facts included in the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin and Wafra accept no liability for any decisions taken in relation to the above.}