Why GP Stakes Transactions May Soon Be On The Rise In Canada

In the world of private equity investing, the most common and well-known transactions are traditional fund investments or co-investments, where third-party limited partners pool capital for purposes of investing in the underlying portfolio assets of a fund. In recent years, however, the trend of GP stakes, a market that has been well-developed south of the border, is beginning to gain traction in Canada.

What is GP stakes investing?

A GP stakes investment is a transaction whereby a third-party investor acquires an interest in an investment fund manager or general partner (as opposed to investing in the investment fund itself). These transactions are typically structured to entitle the investor to receive a portion of the management fees or carried interest (if and when realized) – or both and may obligate the investor to fund its proportionate share of the GP commitment.