The Ledger
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Rees: Vast majority of GP stakes capital funds GP commitments, not cash-outs
“As these firms did get bigger, they were using up a lot of capital, and that's been the major use case for almost all the capital that's gone in the ground over the last decade. There are secondary use cases. Of course, there are times when we're buying out a …”
Rees: Management fees generate immense profits, defying the lights-on myth
“Well, it's not something we like to shout from the rooftops, and I guess here I am shouting it from the rooftops, but these businesses can be extremely profitable. I think the old adage that the management fees keep the lights on, I think that's a good motto. …”
Rees: Dyal operates permanent capital funds with zero investor redemption rights
“We look like a private equity fund on the way in, we get commitments from investors, we call capital to do deals, but we never plan on selling a partnership or ending a partnership, and we really don't ever have a way for investors to elect to redeem. There's …”
Rees: Traditional LP fund portfolios rarely outperform GP stakes portfolios
“It's hard to model a portfolio of LP interests, investing in funds, that will outperform a portfolio of investing in stakes.”
Rees: Large Private Equity Fund Returns Defied the Conventional Scale Penalty
“While there was this prevailing wisdom that as firms got bigger, the returns would suffer the last several years. Was antithetical to that.”
Rees: Dyal underwrites GP stakes purely on cash flow, not exit sales
“From an underwriting perspective, we still use that original lens of cash on cash returns. We certainly don't get the type of cash on cash returns that we got back then in the hedge fund space with 25% yields, but we really think about it from an underwriting …”
Rees: Bain's $1B fund commitment sparked industry-wide GP skin-in-the-game standard
“In just shortly after the financial crisis, there were questions around skin in the game from the perspective of investors and investors were saying, yeah, your performance in the industry hasn't been that good through this cycle. And so how do I know you're i…”
Rees: In-house data science is inefficient even for top asset managers
“It's not really economical or efficient for even the largest firms that we're partnered with to have their own data science team.”
Rees: Top 250 Alternative Firms Are Growing Faster Than GP Stakes Funds Can Raise
“Well, even if you just look at the top 250 firms, the organic growth in those firms is outpacing the ability of us and our two peers to raise capital.”
Rees: Dyal underwrote hedge funds to return 8% to 10% net annually
“We underwrote that every hedge fund could get eight to 10% net every year. A bad year was eight, a good year was 12, and that was it.”
Rees: Early hedge fund GP stake sales were primarily tax arbitrage plays
“It probably was more of a cash out trade vis-a-vis the hedge fund industry, 1520 years ago, because the motivation was really a tax arbitrage. And a hedge fund that is trading relatively actively is going to generate mostly short-term gains, and that will pay …”
Rees: Only a handful of private equity firms effortlessly hit hard caps
“You could probably count on one hand the types of firms that can snap their fingers and hit their hard cap.”
Rees: Dyal has completed 19 of 22 GP stake deals over $600M
“And so in our world where we've done, I want to say, 19 of the 22 deals above six hundred million of check size. So we have a high eighties percent market share.”
Rees: Investment teams of pure bankers need naysayers to counter deal bias
“When you put a team of bankers in a room, man, everything seems like a deal that can be done. It can be structured. We can find a way. So I'm glad our team has evolved now to have a few more naysayers where the few of us that have banking in our background wou…”
Rees: Lehman Took 20% Minority Stakes in GLG and D.E. Shaw
“Every time we did one of these minority stakes in hedge funds, we started with GLG and then we did a firm Called Marble Bar and Osprey and D.E. Shaw. We were doing a lot of work in a lot of other areas, and these 20% stakes in hedge funds were paying the bills…”