GP Stakes

What the investor buys

A stake typically entitles the investor to a fixed percentage of up to three income streams, each negotiated separately.

• Fee-related earnings: management fees and other recurring fees, less the firm's operating costs. They are contractual for each fund's fee period, so they are the most predictable part.
• Carried interest: a share of the firm's portion of carried interest. Firms often reserve some or all of the carry allocated to investment professionals, so the stake may cover only the firm-level share.
• Balance sheet: returns on the firm's own commitments to its funds and other principal investments.

Stakes are usually non-controlling. The investor gets information rights and consent rights over fundamental decisions, such as a sale of the firm or major changes to its business, rather than over investment decisions. Holding periods are long or open-ended; exits come through a sale of the stake, a listing of the manager, or negotiated put and call rights. All of these terms are market practice and vary widely by transaction.

Why managers sell stakes

Proceeds go to the firm, to its owners, or both. Common uses are funding the GP commitment to new and larger funds (ILPA Principles 3.0 asks for a substantial GP equity interest in the fund, contributed in cash rather than through management-fee waivers or specialised financing facilities, and sets no percentage); launching new strategies, regions or products; founder liquidity and succession between generations of partners; and building balance-sheet capital for seeding or co-investment.

GP stakes, seeding, financing and GP-led deals

• GP seeding gives a new manager anchor capital for its first fund or product in exchange for a share of revenue or equity from launch.
• A GP stake is equity in an established firm, bought from the firm or its partners.
• GP financing lends to the GP or management company, often against the same fee and carry streams, without taking equity.
• A GP-led secondary moves fund assets into a new vehicle; it does not change who owns the manager.

What the manager's LPs should ask

ILPA Principles 3.0 asks GPs to disclose who owns the management company, to notify all LPs if that ownership changes during the fund's life, and to tell LPs of any intended transfer of GP interests to a third party, however small. The notice should explain the goals and rationale, the effect on distributable and long-term cash flows, and how fund- and GP-level economics will change, in particular how carried interest will be shared among GP members who are not selling. Where a voting member of the LPAC also holds an interest in the GP, such as a minority stake in the management company, ILPA asks the GP to disclose it to the LPAC.

The practical questions follow from this: does the investment team keep enough carry to stay aligned; do the proceeds go to the firm or to departing founders; does the stakes investor hold any right that touches fund decisions; does it also hold stakes in competing managers or invest as an LP in the same funds; and could the transaction trigger change-of-control or key-person provisions in the funds' agreements.

Valuation and the dependence on fundraising

Stakes are generally valued by projecting each income stream separately: fee-related earnings from current fee-paying assets and expected successor funds; carry with a higher discount rate or a probability weighting for its volatility; and the balance sheet at or near net asset value. Metrick and Yasuda, using 238 funds raised between 1993 and 2006, estimated that about two-thirds of the sample managers' expected revenue came from fixed-revenue components such as management fees, which are not sensitive to performance, rather than from carry. Because a single fund's fees step down after its investment period and end with the fund, a stake's value depends on the manager raising successor funds. A stake in a firm that stops raising runs off.

Worked examples

Examples are illustrative; figures are not market data.

Not the same as

• GP Seeding: Seeding backs a new manager or product from launch, usually with fund capital plus a revenue share; a GP stake buys equity in an established firm.
• GP Financing: GP financing is debt to the GP or management company; a GP stake is equity.
• GP Commitment: The GP commitment is the manager's own investment in its fund; a GP stake is a third party's investment in the manager.

Common mistakes

• Treating a GP stake as a proxy for the manager's fund returns. The stake's income depends heavily on fee-paying assets and future fundraising; carry is one, more volatile, component.
• Confusing a GP stake with the GP commitment.
• Assuming a stake covers all of the firm's carry. The share allocated to investment professionals is often excluded.
• Ignoring change-of-control and key-person provisions in the manager's fund agreements, which a stake sale can trigger.

Edge cases

• A stake in a manager whose funds are in harvest with no successor fund is a running-off fee stream.
• A stakes investor that is also an LP or LPAC member in the manager's funds has a relationship ILPA asks the GP to disclose to the LPAC.
• In a multi-strategy firm, a stake may cover one business line rather than the whole firm.
• Minority stakes bought by other asset managers or insurers are economically similar but may come with distribution arrangements or capital commitments to the manager's funds.

Questions

Sources

1. ILPA Principles 3.0: Fostering Transparency, Governance and Alignment of Interests for General and Limited Partners. Institutional Limited Partners Association, ILPA, Third edition, released 27 June 2019. Status: Current edition (no 4.0 found as of 2026-10-01) (checked 2026-10-01). p.17 (GP Commitment and Ownership); p.27 (LPACs); p.41 (Change of Control Provision) — supports: Disclosure of management-company ownership and changes; notice of transfers of GP interests and their economic effect; LPAC disclosure of members' stakes in the GP; GP commitment in cash
2. The Economics of Private Equity Funds. Andrew Metrick; Ayako Yasuda, The Review of Financial Studies, Vol. 23(6), pp. 2303-2341. Status: Published (paywalled) (checked 2026-10-01). Abstract (p. 2303) — supports: About two-thirds of expected manager revenue from fixed components such as management fees (238 funds, 1993-2006)

• GP Economics
• Management Fee
• Carried Interest
• GP Commitment
• Emerging Manager
• GP-Led Secondary