Dyal Capital considers sale of GP stakes out of third fund

A potential sale out of a relatively young fund has raised eyebrows in the market that is dominated by Dyal, Goldman Sachs and Blackstone.

Dyal Capital Partners is exploring options for its third GP stakes fund, which could include selling a strip of investments from the pool, sources with knowledge of the situation told sister title Buyouts.

It is not clear what sort of structure such a deal could follow. Dyal may choose to sell a strip of select GP stakes out of the fund, while retaining others, one of the sources said.

Dyal is talking to PJT Park Hill about various options, the sources said. It is not clear if Dyal formally engaged the firm. Spokesmen for PJT Park Hill and Dyal Capital declined to comment. 

“It’ll be interesting to see if they market to traditional secondary buyers or target more of the non-traditional buyers like sovereign wealth funds who may have the ability to hold these types of interests longer,” one secondaries professional said, speculating about what a potential deal could look like. 

Dyal, backed by Neuberger Berman, closed Dyal Capital Partners III on $5.3 billion in 2017, according to Secondaries Investor data. The fund has investments in Vista Equity Partners, EnCap Investments, Silver Lake Technology Management, HIG Capital, Starwood Capital Group and KPS Capital Partners, among others. 

The third fund was Dyal’s first that focused primarily on buying passive, minority stakes in private equity management companies. Earlier funds focused on hedge funds. 

The firm closed its fourth fund on $9 billion in October, increasing the target size by more than $3.5 billion during the fundraising process, the firm said at the time. 

Dyal is talking to limited partners about launching its fifth fund, which could target at least $9 billion, Bloomberg reported last week.

A potential sale out of a relatively young fund has raised eyebrows in the market that is dominated by Dyal, Goldman Sachs’s Petershill Group and Blackstone. 

Dyal has stressed that it is happy to hold its GP stakes investments for the long term. The firm is paid by taking a share of cashflow, including fees and carried interest. As long as firms are generating fees and carry across multiple funds over time, Dyal’s investments will be productive for the firm. 

“We have investors who want to own these cashflow streams not just for the typical seven-to-10-year periods but for decades,” Michael Rees, head of Dyal, said at an industry conference in 2018.

“So while they may not ever get a terminal value, they’ll get a very long-dated cashflow stream that should adequately compensate them for the risk they’re taking.”

Potential exits for GP stakes investments are expected to come in the form of publicly listing a portfolio of GP stakes, or a straight sale to a third-party buyer.

– This report was originally published on sister publication Buyouts.