Aug 13, 2021 · 44m · capital-allocators
Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208)
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In this episode of Capital Allocators, host Ted Seides interviews PitchBook's lead private equity analyst Wylie Fernyhough to explore the evolution, economics, manager incentives, governance, and expanding landscape of GP stakes investing.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 20.2% of the talking time here. How this is scored →
Ted as informed peer 5.1 Guest teaching 5.6 Guest disagreement 0.6 Ted pushing back 1.4
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 30:39 Reframing illiquidity misconceptions
Wylie directly pushes back on the common allocator perception that GP stakes are illiquid dead-ends by outlining multiple monetization channels like securitization and GP-led secondaries.
Hardest push from Ted ▶ 17:59 Ted questions the GP economic incentive to sellTed presses Wylie on why savvy fund managers would willingly give up such attractive cash flow streams if the buyers are achieving such one-sided risk-reward terms.
Biggest teaching moment ▶ 28:18 Empirical data dispelling allocator performance fearsWylie cites concrete PitchBook research showing fund quartile rankings and step-ups do not degrade post-stake sale, countering standard allocator assumptions.
Ted holds their own ▶ 19:24 Ted brings insider allocator context on ownership modelsTed leverages his proprietary peer discussions with legendary managers, contrasting Carlisle's public model with Bain Capital's private partnership to enrich the debate.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Wylie Fernyhough's Career Background and Path to PitchBook | 4 | 5 | 0 | 1 | Ted guides Wylie through his career progression and the origin story of GP stakes. Wylie gives a detailed historical chronology from the 1988 Nikko/Blackstone deal up through Dyal, Petershill, and the mid-market entrants. | |
| Economics, Risk-Return Profiles, and Downside Protection in Stakes Investing | 5 | 6 | 1 | 2 | Ted probes on the risk-return profiles across large, mid-market, and small managers. Wylie breaks down gross IRR expectations, cash yield components, and the structural downside protection provided by locked-in management fees. | |
| Asset Allocation Perspectives and Key Industry Competitors | 5 | 5 | 0 | 1 | Ted asks where allocators bucket stakes investments and who the main competitors are. Wylie details bespoke asset allocation approaches (such as splitting management fee cash flows into credit special sits) and lists mid-market players. | |
| Why Fund Managers Sell Stakes: Succession, Growth, and Financing Alternatives | 6 | 5 | 1 | 2 | Ted brings in his own discussions with prominent managers to question why GPs sell equity rather than keeping private partnerships like Bain Capital. Wylie explains the succession, liquidity, and balance sheet commitment drivers. | |
| Structural Complexity, Legal Nuances, and Public vs. Private Dynamics | 5 | 6 | 1 | 2 | Ted asks about legal subtleties and public versus private trade-offs. Wylie highlights key governance terms, dilution protections, and references the Sixth Street/Golub lawsuits against Dyal. | |
| LP Perceptions, Alignment, and Post-Transaction Fund Performance | 5 | 7 | 1 | 2 | Ted presses on LP concerns regarding manager alignment after cashing out. Wylie shares proprietary PitchBook empirical findings showing fund performance quartile distributions remain steady post-transaction. | |
| Exit Pathways, Fund Lifecycles, and Market Capacity | 5 | 6 | 1 | 1 | Ted asks about the back-end liquidity challenge and total market capacity. Wylie outlines securitizations, dividend recaps, and secondaries, estimating an addressable mid-to-large market capacity exceeding $100 billion. | |
| PE Seeding Trends and Private Capital in Sports Franchises | 6 | 5 | 0 | 1 | Ted cites his personal domain expertise in fund seeding to explore first-time fund hurdles and institutional sports ownership. Wylie explains the rise of family office seeders and sports franchise institutionalization. | |
| Public PE Valuations and the Five-Year Industry Outlook | 5 | 5 | 0 | 1 | Ted and Wylie discuss public PE firm re-ratings and project the market 5 years ahead, concluding that IPOs and stake sales will become mainstream for mature alternative managers. |
Statements from this episode (18)
Blackstone sold a 20% stake to Nikko in 1988 for $500M
“So to really look at the history of stakes, you have to go back a good 30 plus years to when Blackstone sold a minority stake to Nico Securities in 1988. And this was Just after their first fund was launched, and they sold a 20% stake at about a five hundred m…”
LPs bought GP stakes to share in economics they helped create
“I think in general it was that strategic element of there were a lot of large We'll say institutions that were looking to have a closer relationship. And so whether it was a large pension looking to get a better allocation and just economic relationship with, …”
Mid-market GP stakes hit a sweet spot at 20% to 25% gross IRR
“When you look more at the mid-market, you're looking at 20 to 25% gross IRRs, and again, I think that's kind of the sweet spot, because you're getting paid a decent amount more, especially on the cash flow yield side with the lower pricing, but there's also mo…”
GP stakes returns are split evenly between yield and appreciation
“You're getting nearly half the return from yield, and the other half is from appreciation.”
GP stakes investors recoup capital if the manager raises one subsequent fund
“But if you're able to at least get that second fund in after buying a stake, you're pretty much guaranteed to get your money back just off management fees and some of the maybe in ground carry.”
Growth equity is the logical asset allocation bucket for GP stakes
“But in general, if you had to place it in one, I think growth equity does make some sense. These are minority stake investments typically going to be used for some sort of growth action.”
Private equity GP stake sales often avoid the highest bidder
“And in a lot of cases, one thing that's really interesting is that these deals don't always go to the highest bidder just because of the value add that some of these teams are able to bring.”
Major GP stakes buyers plan for 20-to-30-year holding periods
“When Dial buys in or when any of these large firms buy in, they buy in with the Thought that we're going to hold this thing for 2030 years, even though maybe it's only underwritten out to 12 or 15.”
GP preferred equity deals target a 1.5x return over five years
“On the PREF deal, it's typically going to be a five-year deal where the lender's trying to make One and a half times their capital back.”
Sixth Street and Golub sued Dyal over the Owl Rock tie-up
“This can become a sticky point, and one recent case we saw this highlighted was Dial, where it had some lawsuits filed by two portfolio companies, Sixth Street and Golub, to prevent Dial from potentially sharing important and Critical information with Alrock, …”
Public PE firms face intense pressure to prioritize fee-related earnings
“I think there's certainly more pressure to change the business model once you go public. And I think we've seen that with Carlisle, we've seen that with Blackstone, a greater focus on fee-related earnings, on growing the number of strategies.”
Fund performance quartiles remain exactly the same after GP stake sales
“Performance of the fund, and when we looked at this, we looked at private equity, credit, and real estate, and effectively, the proportion of top quartile, second quartile, et cetera, funds is the exact same before and after. I mean, there's a marginal shift. …”
Fund sizes and AUM do not accelerate after selling a GP stake
“On the AUM side, I was actually surprised to see that step ups and AUM growth didn't expand at the same rate that I thought it would. So step ups actually were the same, if not slightly lower after selling a stake.”
Dyal and Petershill refinance 15-20% IRR GP stakes at 5-7% cost
“Because, you know, you can go out and refinance some of these at a five to seven percent cost of capital, and you're putting that against something that's delivering 15, 20% plus IRRs.
And so Dial and Peter Sill have both done this, and I think we may see more…”
Mid-market GP stakes will roll into perpetual vehicles within a decade
“I think we're going to get to some .810 years down the road where these mid-market
Funds are still holding quite a few high quality assets, and they might be rolled into some sort of special purpose or perpetual life vehicle where LPs then get the option to ei…”
Sports leagues barring PE stakes will quickly pivot to allow them
“And I think the other leagues that have not yet allowed it will change pretty quickly once you see what happens with some of these firms that do sell a stake.”