Singapore family office sees more 'GP stakes' opportunities
Singapore-based single-family office KMXK Investment believes that more general partner (GP) stakes opportunities have emerged, providing family offices with a broader yet more complex range of options in private equity investing.
“Factors such as the GP's performance, ability to retain and attract talented investment professionals, and the overall success of their fund offerings can impact the value of GP stakes over time”, Jeremy Lim, chief investment officer at Singapore-based single-family office KMXK Investment, said in an exclusive interview with the AsianInvestor.
KMXK Investment
GP stakes investing involves investing in the management companies of private equity and alternative asset firms.
It allows investors to gain exposure to the long-term value creation potential of the GPs themselves, rather than investing directly in the funds they manage.
Typically, the limited partner (investor’s) ownership position is non-strategic and non-voting, though it does provide access to the underlying business model and revenue from management fees.
GP stakes have gained popularity in recent years as a distinct investment strategy. Some big names in the GP stakes game include Blackstone and Dyal Capital Partners.
GP stakes investing began with investments in large, well-established GPs, although in recent years, investors have also made investments in smaller and newer GPs.
NEW WAY TO INVEST
After a historically bad 2022 where both public stocks and bonds fell close to 20%, venture capital fundraising has hit multiyear lows while the private equity fundraising outlook remains bleak amid high interest rates and persistent inflation.
Nevertheless, investment in private markets is an ongoing trend expected to continue among large institutional investors.
As fundraising slows, many cash-strapped fund managers are likely to be keen to sell non-controlling stakes as they look for new ways to generate capital.
“When evaluating GP stakes, it is essential to assess the GP's track record, investment strategy, and their ability to continually raise assets under management (AUM). Understanding the GP's future fundraising prospects is also crucial since the success of GP stakes depends on the GP's ability to attract and retain investors,” KMXK Investment’s Lim said.
Investing in GP stakes also requires a long-term perspective.
“Single family offices need to evaluate the GP's vision, strategic plans, and their ability to adapt to market trends. It's important to understand the GP's long-term strategy for value creation, as well as their plans for expanding their fund offerings and scaling their business.”
Due diligence, therefore, remains key.
“Conducting thorough due diligence, understanding the GP's long-term plans, and carefully assessing the investment's potential returns and risks are essential steps when considering GP stake strategies,” Lim added.
GP STAKES APPEAL
“I foresee the GP stakes industry to continue growing, especially with the expansion of private markets and an increased desire for alternative asset allocation. With more private equity firms seeking opportunities to raise capital, the number of GP stakes deals will most definitely increase,” Kevin Teng, CEO of WRISE Wealth Management Singapore, told AsianInvestor.
“GP stakes strategies can be an appealing option for single-family offices looking to diversify their portfolios and access the benefits of private equity. By investing in general partnerships, families can tap into the expertise and network of established private equity firms”, he adds.
WRISE WM
It also helps new families who otherwise might be looking at years of having to build networks to break into the venture capital ecosystems.
Such investments can help accelerate the expansion of their network among VC and private equity firms, said Teng.
“Moreover, because these investments usually involve profit-sharing arrangements, families can benefit from the success and performance of the private equity firm.”
A 2023 family office investment insight report from Goldman Sachs also noted that family offices are expected to increase their allocation to alternatives over the next 12 months. About 22% of the respondents in that report were based in Asia.
The survey showed that globally there was an outsized 44% allocation on average across private equity, private real estate and infrastructure, hedge funds, and private credit.
“While other investors, such as hedge funds, have slowed their activity in privates, family offices continue to evaluate private opportunities, with a more selective approach,” the report said.