Buying stakes in other private equity firms has been a hot topic this year, with the likes of Dyal Capital Partners, Blackstone‘s Strategic Capital Group and Goldman Sachs‘s Petershill all raising funds to acquire GP interests.
For TA Associates, one of the world’s oldest private equity firms, the thought of selling a part of itself or listing on a stock exchange is akin to parting with a family heirloom.
“We have not sold a piece of the GP and have no plans to do so, or go public,” Ajit Nedungadi, managing partner and co-head of TA Associates’ core investment committee, said at a roundtable discussion in London on Thursday.
“If you’ve got a family watch as an heirloom, do you go sell it? You were given something as a partner, [so] you then view as your responsibility to develop it, nurture it, build it to something of greater value, then hand it off to your next generation. There’s not a legal restriction on doing that [at TA Associates], but we do not anticipate doing it.”
The Boston-headquartered firm is structured so that 23 managing directors own 100 percent of the firm, and upcoming MDs are “gifted” a seat on the partnership based on their performance.
“We describe it as you lease your seat,” Nedungadi added. “You have your seat while you’re there, you do a good job, you do better, you do worse, and when it’s time for you to go you just give up your seat to the next individual who takes over.”
Firms focused on GP interests expect to raise around $14 billion this year, according to data from Bain & Co.
Transactions this year include Blackstone’s purchase of a 10-15 percent stake in BC Partners in August and Dyal’s acquisition of a roughly 20 percent stake in Owl Rock Capital Group this month.
The strategy is also widening, with some firms targeting stakes in niche private markets firms. These include Zamo Capital, launched by LeapFrog Investments co-founder Jim Roth, which invests in UK-focused impact managers, and Goodhart Partners, which buys interests in emerging markets-focused managers.
Nedungadi acknowledged that GP interest deals were the “flavor du jour” and that certain investors have made a business out of investing in other private equity firms.
“We’re not available in that pipeline because we don’t do that,” he said. “We think it’s really important to the culture of the organisation.”
Take a look at which firms have bought stakes in other managers on sister publication Private Equity International: Fund of firms: Who owns what?
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