The GP stakes market leader says increased private market allocations and consolidation within the PE industry will continue to fuel the maturing asset class. Blue Owl (NYSE: OWL) says it remains on course to raise a record $13 billion for its latest GP stakes fund.
Evidence is mounting that the private markets are undergoing an era of consolidation amid growing mega-manager dominance, fundraising challenges and LP capital demands.
Blue Owl says those challenges benefit its GP stakes funds, which own significant slices of dozens of the world’s biggest PE firms. PE consolidation leads to successful exits of portfolio firms.
Additionally, insurance companies, family offices and other LPs beyond pension plans are increasing their private market investments and putting pressure on PE firms to scale.
“In our GP stakes business, our partner managers continue to benefit from two meaningful secular trends, growing allocations to alternatives and GP consolidation,” Co-CEO Marc Lipschultz said on an earnings call earlier this month.
The New York-based firm has raised five funds dedicated to this strategy, is raising two others and says it owns 60 percent of the GP stakes market. Its fifth fund, which closed in 2022, was the largest strategy of its kind globally at $12.9 billion. Blue Owl GP Stakes VI is targeting $13 billion and closing sometime in 2026, Lipschultz says.
The new fund has raised more than $3.5 billion since launching late last year, including a $1 billion commitment from Houston-based CAZ Investments. The fund, like its predecessors, will invest in large-cap firms.
Lipshultz says the fund raised $1 billion in the second quarter. That includes a $175 million commitment from the Minnesota State Board of Investment. The $124.7 billion pension fund has committed a combined $625 million to Blue Owl’s three preceding GP stakes funds. Blue Owls’ two initial stakes funds focused on hedge funds before transitioning to PE for fund III.
| Fund | Vintage Year | Commitments | Net IRR |
| GPS I | 2012 | $1.3B | -1.1 % |
| GPS II | 2015 | $2.2B | 8.6 % |
| GPS III | 2016 | $5.3B | 20.4 % |
| GPS IV | 2018 | $9B | 39.8 % |
| GPS V | 2022 | $12.9B | 7.5 % |
Fund V has invested in 17 firms, including: CVC Capital Partners, H.I.G. Capital, I Squared Capital, KPS Capital Partners, Lead Edge Capital, MBK Partners and PAI Partners.
Blue Owl and Abu Dhabi-based Lunate earlier this year jointly launched a GP stakes fund targeting middle-market firms with less than $10 billion AUM. That new fund made its first investment in May, taking a minority position in Chicago-based Linden Capital Partners, a healthcare specialist with $8 billion AUM.
Lipschultz says the middle-market fund expects to close two more deals over the next three months.
Though consolidation helps boost exit returns, Blue Owl and other GP stake players say the biggest draw to the asset class are the profits derived from management fees, carried interest and cash flow of portfolio companies.
“Blue Owl’s underwriting does not ascribe significant terminal value or exit multiples to the manager,” a Minnesota investment staff memo states. “Rather, Blue Owl expects to generate attractive returns solely from cash flow.”
Blue Owl says the funds are essentially perpetual, though it recently launched what it believes to be the first continuation fund-like vehicle to cash out Fund III investors. Blue Owl plans to move five percent of the 10 positions held in that fund to the new vehicle and expects to generate $365 million to return to Fund III LPs.
