Alternative liquidity solutions
Tepid exit markets have had a significant impact on PE distributions to investors and jammed up liquidity in the PE ecosystem. Bain & Company’s analysis of Preqin and MSCI data shows global buyout distributions as a percentage of net asset value (NAV) falling to a ten-year low, while private markets asset manager Future Standard notes that well over a third (37%) of global PE funds are now eight years or older, with more than 13% of these funds older than a decade. This has put GPs under increasing pressure to unlock liquidity in their portfolios and accelerate capital flows back to investors to start the mill turning again. “The biggest pressure on the GP right now is the liquidity issue. The liquidity cycle is stalled and until managers start returning capital to investors, those investors will not have the cashflows to reinvest in new funds,” Comis says. “The machine is blocked, and even in situations where investors like and trust a team, they may not be able to invest because they haven’t had enough capital back from their PE programs.” The urgent demand for liquidity has fostered the emergence of a variety of financing solutions to help GPs expedite liquidity flows, ranging from GP-stake divestitures and GP-led secondaries to leverage at the fund level. GP-stake divestitures on the up An increase in GP-stake divestitures – where managers sell minority stakes in the general partner to third-party investors – has been a noticeable trend in the buyout market, with demand for liquidity and industry maturity encouraging GPs to explore staking transactions. Our survey findings show that 77% of respondents plan to make a GP-stake divestiture in the next 24 months. The jump in planned GP-stake divestitures is particularly significant in APAC, with 90% of this group making such plans compared to just 15% in 2024. A large majority of North American GPs (71%) and EMEA GPs (77%) are also planning a GP-stake divestiture in the next 24 months. “The early model in the PE industry was to operate as a partner-owned business and raise money from trusted LPs. That model still works, but rising interest in GP-stake divestitures shows that the market is maturing,” Comis says. “At a time where it is harder to raise funds and LPs are asking for bigger GP commitments, stake sale proceeds can help GPs to finance their fund commitments. Some GP-stake investors will also be able to make commitments to future
The biggest pressure on the GP right now is the liquidity issue. The liquidity cycle is stalled and until managers start returning capital to investors, those investors will not have the cashflows to reinvest in new funds. Sabina Comis Dechert LLP 77% of respondents plan to make a GP-stake divestiture in the next 24 months.
funds, giving GPs a lead investor the next time a fund is launched.”
Capital raised from GP-stake deals can be used to achieve a variety of strategic objectives, ranging from financing succession and GP fund commitments to recruitment and new strategy launches. The survey shows the rationales for GP-stake deals varying by region. Of those planning to make a GP-stake divestiture in the next 24 months, 59% of the EMEA-based respondents say working capital and talent retention are primary motivations. Meanwhile, those based in North America are more likely to cite founder/stakeholder liquidity (50%) and/or the facilitation of succession planning (47%) as drivers.
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