M&A in alternatives to loom large in GP staking in 2024: Blue Owl

Large managers gobbling up smaller ones will be a key theme in the GP stakes market this year, a new report by Blue Owl Capital said.

M&A in private capital is accelerating as big firms seek to grow their product lines and AUM, according to 2024 GP Strategic Capital Outlook, penned by Michael Rees, head of GP strategic capital, and Sean Ward, a senior managing director. Buyouts viewed a copy of the report.

Large GPs have “multiple motivations” for pursuing tie-ups, the report said. They include enhancing scale and global presence or “filling product gaps through targeted acquisitions or team lift-outs.”

M&A also supports expansion into new markets and geographies “more quickly and efficiently” than is possible in “a challenging fundraising environment.”

The impact of recent consolidation across alternative assets is being felt in GP stakes portfolios, which have grown substantially in the past decade.

Blue Owl made note of this, pointing to several examples in its own portfolio. In 2023 alone, four Blue Owl partners were involved in three major deals – Bridgepoint’s merger with energy transition specialist ECP, CVC Capital Partners’ purchase of infrastructure investor DIF Capital Partners, and Nuveen’s addition of private credit shop Arcmont.

“We believe this trend will continue in 2024,” the report said.

Getting bigger

Not surprisingly, another important theme is “resilient” big managers, which appear to be gaining from more than just increased consolidation.

Slower fundraising, the report said, is being “partially offset by a shift in assets to larger, more established brand-name firms.”

Further, big pension plans will probably not reduce allocations to large fund partners, the report said. That is because many LPs are looking “to concentrate their manager relationships across strategies and, in many cases, asset classes.”

This is good news for Blue Owl’s GP strategic capital platform, which acquires long-dated minority interests from among the top 200 firms. Along with names cited above, the portfolio features investees like Clearlake Capital, HIG Capital, HPS Investment Partners, Platinum Equity, Silver Lake, Veritas Capital and Vista Equity Partners.

Despite slower fundraising and realizations, the report said, Blue Owl stakes held in “large, institutionalized private capital firms” continue to yield “both cashflow and capital appreciation.”

Other key themes flagged include the outsized growth prospects of North American private equity. Another is the role of active management in superior returns, a trend Blue Owl believes may advantage GPs “who field large operational/value creation teams.”

Finally, the report identified the “vast, largely untapped” retail channel as an important theme – one in which big managers “can benefit the most, at least in early days.”

Blue Owl in 2022 closed Dyal Capital Partners V at $12.9 billion, the largest GP stakes vehicle on record. Since inception, the $51.4 billion platform has done 76 equity deals and currently oversees 50 partnerships. Fund V has so far made 18 investments.