Large private equity shops gained traction last year despite formidable market headwinds, Michael Rees, co-president of Blue Owl Capital, told Buyouts.
“2022 was the year of the big firm,” Rees said. “While it doesn’t mean everyone had the 2022 they wanted,” the top 200 managers persevered “through better performance and faster growth, widening the disparity between the big and the small.”
GPs of all types and sizes were last year sharing the pain of fundraising challenges. Big, brand-name sponsors, however, may have had an edge owing to an LP focus on re-ups with long-time incumbents. This contributed to capital inflows that were high by historical standards, notwithstanding a 29 percent drop in fund closings, according to Buyouts data.
It was large GPs with “reputation” that proved most able to secure commitments from LPs in a tough environment, Rees said.
Large managers were also the preferred choice of “new money,” he said, or LPs that are comparatively new to private equity. In 2022, these investors upped their market influence as many traditional institutional sources, such as US pension systems, struggled with overallocation.
They include overseas LPs, such as Asian sovereign wealth funds and Middle Eastern sovereign wealth funds and family offices, Rees said. They also include retail investors, which favor big organizations with extensive sales forces and “the resources needed to be in private wealth channels.”
For retail investors, this preference is “a safety factor as well as a brand recognition factor,” he said. “It’s also the big [ones] who can service them.”
Along with raising substantial capital in 2022, large managers were “adding to their line-up” of strategies and platforms, especially in areas like private debt, Rees said. This activity, an ongoing focus of large multi-strategy firms, provides “a wider lens on the industry and is important to sourcing capabilities.”
The relative success of big, brand-name sponsors last year worked to the advantage of Dyal Capital, Blue Owl’s GP stakes business founded and headed by Rees. That is because Dyal’s strategy emphasizes the acquisition of long-dated minority interests from among the top 200 managers.
Because many in this category were fundraising and pursuing fresh growth initiatives, Dyal had a surprisingly busy year, Rees said. “The need for capital was quite strong.”
In 2022, Dyal deployed about $4 billion to nine deals backing new and existing partners, “on par with our busiest year ever,” he said. By the end of December, Dyal Capital Partners V had invested in 17 shops, such as CVC Capital Partners, HIG Capital, KPS Capital Partners, MBK Partners and PAI Partners.
As “big firms had the heft and scale to outperform smaller firms,” Rees said, last year helped to “accentuate and accelerate” a long-term trend of consolidating market share in the hands of the top few. “It’s really what happens across all industries.”
Blue Owl in December wrapped up Dyal’s Fund V at $12.9 billion, the largest GP stakes vehicle on record. It has to date invested $8.9 billion, or nearly 70 percent of the total pool, suggesting a sixth offering is likely to be unveiled later this year or in early 2024. Rees declined to comment.