Welcome back to the Alt Goes Mainstream podcast.

Today’s podcast illustrates just how far private markets have come. We dive into the world of GP stakes with Sean Ward, Senior Managing Director from Blue Owl’s GP Strategic Capital Platform, where he was a founding partner and is responsible for helping to oversee the firm that has done the lion’s share of GP stakes investing.

Blue Owl’s GP Strategic Capital business, which started out as Dyal Capital Partners, has accounted for over 61% of the total capital raised in the GP stakes space, closing on over $33.3B across their 7 funds and managing $57.8B AUM. They’ve taken minority ownership stakes in many of the industry’s leading alternative asset managers, accounting for 85%+ of all GP stakes deals $600M or greater in size.

Sean is a Senior Managing Director of Blue Owl Capital, Inc. and a member of the firm’s Board of Directors. He also serves as a member of the GP Strategic Capital Investment Team. Prior to joining Dyal Capital Partners, the predecessor firm to Blue Owl’s GP Strategic Capital platform, Sean was a Vice President at Lehman Brothers and held several roles at Neuberger Berman after it became an independent firm, including Senior Counsel for Neuberger’s alternatives business. Sean was also a lawyer at Covington & Burling LLP and Davis Polk & Wardwell LLP.

Sean and I had a fascinating conversation about the evolution of private markets through the parallel evolution of the GP stakes space. We discussed:

The early days of the GP stakes industry.
What it was like to convince GPs and LPs why stakes made sense.
How the $1B GP commitment by Bain Capital in their fund post-GFC really opened everyone’s eyes to the need to tap into financing as firms grew their fund size and their business.
A “cash in” rather than a “cash out.” Why GP stakes investing is mainly about positive selection since managers are choosing to sell a stake in their business.
How alternative asset management has evolved as a business.
How GP stakes investments have elements of bond-like coupons from cashflows due to management fees and option value from the upside of carry.
Why GP stakes investments are “the most diversified single line item investment one can make in private markets.”
Where allocators bucket GP stakes investments.
What makes a great GP stakes investor.
The power of permanent capital.
The different paths to liquidity in GP stakes investments.

Thanks Sean for coming on the show to share your views and wisdom on private markets. We hope you enjoy.

A word from AGM podcast sponsor, Ultimus Fund Solutions

This episode of Alt Goes Mainstream is brought to you by Ultimus Fund Solutions, a leading full-service fund administrator for asset managers in private and public markets. As private markets continue to move into the mainstream, the industry requires infrastructure solutions that help funds and investors keep pace. In an increasingly sophisticated financial marketplace, investment managers must navigate a growing array of challenges: elaborate fund structures, specialized strategies, evolving compliance requirements, a growing need for sophisticated reporting, and intensifying demands for transparency.

To assist with these challenging opportunities, more and more fund sponsors and asset managers are turning to Ultimus, a leading service provider that blends high tech and high touch in unique and customized fund administration and middle office solutions for a diverse and growing universe of over 450 clients and 1,800 funds, representing $500 billion assets under administration, all handled by a team of over 1,000 professionals. Ultimus offers a wide range of capabilities across registered funds, private funds and public plans, as well as outsourced middle office services. Delivering operational excellence, Ultimus helps firms manage the ever-changing regulatory environment while meeting the needs of their institutional and retail investors. Ultimus provides comprehensive operational support and fund governance services to help managers successfully launch retail alternative products.

Visit www.ultimusfundsolutions.com to learn more about Ultimus’ technology enhanced services and solutions or contact Ultimus Executive Vice President of Business Development Gary Harris on email at gharris@ultimusfundsolutions.com.

We thank Ultimus for their support of alts going mainstream.

Show Notes

00:00 Introduction and Sponsor Message

01:17 Podcast Opening and Theme

02:00 Guest Introduction: Sean Ward from Blue Owl GP Strategic Capital

04:21 Sean Ward's Career Journey

05:14 The Evolution of GP Stakes Investing

06:23 The Start of GP Stakes at Blue Owl

06:57 Raising the First Fund

07:09 The Growth of Blue Owl's GP Stakes

07:31 The Importance of Legal Background in GP Stakes

09:48 Convincing LPs and GPs

11:14 The Importance of GP Commitments

15:23 Strategic Value Beyond Capital

24:45 Succession Planning in Private Equity

26:02 Impact of Market Conditions on GP Stakes

29:26 Underwriting and Returns in GP Stakes

36:33 Cash Flow and Diversification in GP Stakes Investments

37:48 Understanding the Trade-offs in GP Stakes Investing

38:35 Narrow Distribution of Potential Outcomes

40:09 The Importance of Diverse Professional Backgrounds

40:45 Collaborative Partnerships in GP Stakes

41:34 Traits of a Great Alternative Asset Manager

43:49 The Next Frontier: Private Wealth

45:13 Middle Market Strategy and Partnerships

49:34 The Evolution and Future of Private Markets

53:19 Liquidity in GP Stakes Investments

58:26 The Power of Permanent Capital

01:00:28 Is GP Stakes Better Than SaaS?

01:02:43 Exemplary Models for Growth in Asset Management

01:05:47 Conclusion and Final Thoughts

S4 Ep441: Tiger Talk, Presented by Alfa Insurance 11/30/23