GP Stakes: The Holy Grail Of Investing

This is what Tony Robbins in his new book calls the holy grail of investing. To save you some time reading this book, it is what's called GP stakes. So in this video, I'm gonna walk through what GP stakes are, how they work. Currently, we manage an $18.5 million GP stakes fund that we're currently raising for, and we've deployed into 6 deals last year. So how do GP stakes work? If you know how a fund is structured, 99% of funds run a general partner, a GP. They have a limited partnership or a fund, Money from investors comes into the fund and they go use that fund to go buy, you know, let's just say in this example, real estate. Okay? And when real estate makes money, the money flows back to the fund and gets split between the general partner and the limited partners. That's a fund. Go check out other videos on my channel. I talk about this at length. Okay? So, let's talk about now how GP stakes make money and how does a fund actually make money. So, Funds typically in general will charge a management fee and a performance fee. In this case, a lot of funds do a 2% management fee and an 80/20 split on the return. So let's actually put some numbers to paper here. So let's say this fund is $100 million, okay? We got a $100 million fund. I'm gonna put big up here in red. It's gonna start getting ugly here in a second, all right? $100 million fund. Here, so we're doing simple math here. A fund on a 2% management fee would make $2 million per year in a management fee. Following along so far? Now let's say this fund this year did decently well. We got a 20— I'm gonna put it all the way down here in the corner— 22% return for the fund, okay? So the fund went from $100 million after fees, it ballooned up to $122 million. So if we're going to split that gain into 80/20, that means investors would take home $17.6 million and the fund or fund managers would take home $4.4 million on carried interest. Okay. So if you're totaling things up, the fund made $4.4 plus $2 million for a total of $6.4 million. Not too bad for running a fund. Okay, that's your total. And investors made $17.6 million, or they had a 17.6% net rate of return or take-home rate of return. Now you're adding these numbers together, I know, and they don't total $122. It's because the management fee is taken out before. Okay, it actually is $124 million if you add the management fee. Okay, now remember this number of a 17.6%. That's a pretty good return. As an investor, you got a 17.6% return. And as a fund manager, you're pretty happy too. Hey, we made $6.4 million this year. That's not too bad. And usually funds, it's only a couple partners. You know, you're splitting a few, you know, few million bucks here. Now, what a GP stake person would do, a smart family office or a GP stakes firm would come in and say this, we love being part of the GP. This is, I mean, this is the Forbes 100 list is riddled with people that run general partnerships. 'Cause by the way, this is a $100 million fund. If you run a billion-dollar fund or a 10, the numbers scale the same way. Instead of making $6.4 million on a billion-dollar fund, you'd have made $64 million in one year. If you run a $10 billion fund, that's $640 million you would've made in one year doing this example, okay? There's a reason David Tepper's making hundreds of millions of dollars or Ken Griffin made $4.6 billion last year running Citadel. Fund managers make tons of money. And so GP stakes firms go, hey, we want to be part of that. This is why people go to Wharton and Stanford and Harvard. They want to be part of GPs one day. And so what they say is, hey, can we come in and buy a piece of the GP? So let's do this. We're going to come in and we're going to take a stake in the GP. We're going to come buy, I'm going to use this example, we're going to buy 8% of the general partner. Additionally, We want to invest $10 million into the fund. I'm going to put $10 million right here at no fee, no carry, meaning we have no management fees and no carried interest on the $10 million. Let's just play some math with me for a second. Okay. And why would a fund do that? Well, it brings in an anchor investor, brings in a partner. They bought part of the GP. They liquidate us a little bit. Great. So let me break down the economics of how this looks and why this is the holy grail of investing. So a GP stakes firm. They're going to put in $10 million at no fee, no carry. Okay, boom. They come in, they, you know, the fund does well, right? At no fee, no carry, they get a 22% return. So that money grows to $12.2 million. So they're already doing pretty good. They're at a 22% return compared to other investors at 17.6%. Additionally, though, they get 8% of $6.4 million that was earned on the fund. They get 8% of that. Which is $512,000. Bringing the total to roughly $12.7 million they made on a $10 million investment. Which would make their return a 27% return. Now, if you're following here, a GP stakes investment having that 8% at no fee, no carry. Instead of getting 17.6%, they're now getting 27% returns with the same amount of risk. You know, people always say high risk, high reward, low risk, low reward. These guys have kept the same risk level but have gotten a higher reward because they come in and were part of the GP. Isn't that kind of cool? Now, this math does not calculate— a lot of times they're going to buy out a piece of that GP. Sometimes it's gifted. If they're a really good strategic partner, they gift some shares to a person. In this example, this was a gift. Maybe they invested $1 million here and maybe that return would be lower for year 1, but year 2, year 5, year 10, that return really is that big of a difference between a regular investor in the fund and a GP stakes investor. Now, what we've done with Fund Launch Partners is we found, hey, we have 1,000+ fund managers in our Black Card community in Fund Launch. We have $4.7 billion right now reported client AUM from Blackheart and our full Fund Launch community. And we thought, what if we handpicked some of the best and brightest firms out of here and we started to partner and work with them? So that's what we've done the last year. We've just launched Fund Launch Partners. We're still raising capital for this. We've raised roughly $18.5 million hard committed into the fund. We have about $40 to $50 million in verbal soft circle commitments right now we're working on. But we've— with $18.5 million, we have done last year We did 6 funds already. So we've already deployed into 6 funds. We're looking to do another 10 funds next year. If you want to learn more, you can go to fundlaunchpartners.com. Learn more about Fund Launch at fundlaunch.com. But we are doing this actively. If you have a deal, you want to talk to us, Fund Launch Partners, you can actually go apply your fund there. We're looking through— I think we had 150 funds last month submit. We're looking through funds every single day. We have a full team of analysts looking at it. Go submit your funds and we will see you inside.