BONUS Episode: A Conversation in Private Equity

According to the Bloomberg Billionaires Index, Stephen A. Schwarzman, CEO & Co-Founder of the Blackstone Group, is the 32nd richest person in the world. But Schwarzman didn’t make his fortune investing in stocks, he made his money as an owner of an alternative asset management company. On this bonus episode of The Yield, Yieldstreet’s Peter Kerr, CFA is joined by Bradford Pilcher from Bonaccord Capital Partners, a subsidiary of P10 Holdings, a leading provider of private market and impact investing strategies, with over $14B in AUM, for a conversation around private equity, GP stakes investing and current market opportunities.

There are several competitive advantages for companies like Bonaccord to maintain their independence while also partnering with others within their market segment. There are natural synergies associated with fund-to-fund businesses, including excellent platforms for the origination of new investment opportunities, increased communication about underlying investment strategies, and strategic development with portfolio companies. Across the board, having access to other resources internally is a huge strategic benefit.

But how does private equity compare to venture capital? Private equity is the business of buying into companies that are not available for sale in the public market while venture capital focuses more on early-stage, non-control investments. Venture capital, on the other hand, includes early-stage non-control investments that might return 10 or 20 or 30 times your money or more, depending upon where the investments are made. And it’s not necessarily just buying a high technology company. Investors can buy into a company that makes tires or makes telephone poles. Anything from very high technology to very boring and sleepy goes — if an investment strategy is done well, it can generate very high returns.

There are three characteristics that make private market sponsors remarkably attractive businesses — stability, profitability and growth. Brad describes the benefits of the remarkably stable business of buying into the private market. In the private markets business model, there are typically very limited capital expenditure requirements, meaning when they generate profits there’s cash that can be distributed to the partners. And with the profitability that can be realized through elevated fees, elevated profit margins, and ability to make cash distributions and historic and forecast growth, it would appear that this business model is very strong.

But why would such profitable businesses give up any portion of their equity? There are both financial and strategic reasons to take on a GP minority stake. Brad explains the importance of sourcing investment capital and succession planning as two potential financial rationales. And equally important is the value of taking on a GP minority stake as part of the process to take the next step in growing, diversifying and institutionalizing any business. From that perspective, a strategic partner can only help with taking midsize sponsors to the next level.

For more details on the numbers that prove this is a very favorable competitive dynamics, insights into why private market fees seem so high, and details regarding the new Bonaccord offering from Yieldstreet, tune into this bonus episode of The Yield.

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Published:

01/26/2022

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