E232: The CIO of Hunter Point Explains the New Era of GP Stakes Investing

Speaker 1 If I'm a GP, I'm presumably thinking, How do I get the best price? Why do auctions actually distort the alignment with GP stake investors?

Speaker 2 When you're in an auction dynamic, that's not necessarily the situation to really tease out how to set up the relationship for success.

Speaker 2 It might be about price maximization, but that's not necessarily saying, Well, what is the shared future vision? How are we going to build something together?

Speaker 2 When you build relationships directly rather than through a competitive process, you can build trust and alignment from day one. You can't just will trust or success into existence.

Speaker 2 You kind of have to earn it, kind of have to keep showing up, kind of have to let credibility build over time. And that's not necessarily easy.

Speaker 2 You learn in this business that patience isn't necessarily passivity, it's commitment. And those two lessons made me a better partner to my GPs and definitely made me a better investor.

Speaker 1 Melvin, I've been very excited and looking forward to this. Welcome to the How Invest podcast.

Speaker 2 Hey, great to see you and looking forward to it as well. Listening to the podcast, so pleased to be on it.

Speaker 1 So you're one of the OGs OGs in the GP space going back to 2014 when you were on the Blackstone team doing GP stakes. Today, you're the CIO of Hunter Point.
Let's start there.

Speaker 1 Hunter Point officially started the market in 2024, nearly a decade after you started at Blackstone and nearly 12 years after Dahl entered.

Speaker 1 How is it that Hunter Point is able to enter the market? And are you guys not too late to the market?

Speaker 2 That's a great question. So from the inception of Hunter Point, the objective for us was really quite clear.

Speaker 2 We just wanted to be the preferred partner for bigger private market GPs across the world and not just a source of capital, but a true provider of strategic partnership.

Speaker 2 So for us, we felt we came in at the right moment. The private markets landscape was really shifting at that point.

Speaker 2 More and more GPs were beginning to see themselves not as a collection of funds, but as a business in their own right. And that creates sort of a need for a different solution.

Speaker 2 And our idea was to try and build something to fill that gap, a purpose-built platform.

Speaker 2 One designed from the ground up with senior talent, institutional capabilities, and try and find a way to increasingly meet the sophisticated needs of those GPs. So the thesis was pretty simple.

Speaker 2 If we could offer a differentiated partnership model, stay disciplined on price, avoid the auction dynamics that distort the alignment around these transactions, then we could build a pretty interesting portfolio at fair value.

Speaker 2 So the goal wasn't speed of entry or being the first mover. It was precision and building the right platform for the right partners at at the right time.

Speaker 2 Now, looking forward, I think this opportunity set just continues to evolve, both in stakes and GP solutions. So there's a lot more to run in the industry.
It continues to evolve.

Speaker 2 And we see the opportunity set continue to grow. GPs are launching, GPs are scaling, strategies are emerging, and the platforms are becoming increasingly complex as are the problems they face.

Speaker 2 So that evolution naturally reinforces the need for strategic partners.

Speaker 2 And we think those are ones that can help these firms unlock new pockets of growth and realize the full potential of their businesses.

Speaker 2 So we're excited when we entered and we're excited to see what the future holds.

Speaker 1 You said something really interesting there. You said that auctions distort alignment with GPs.
If I'm a GP, I'm presumably thinking, how do I get the best price?

Speaker 1 Why do auctions actually distort the alignment with GP stake investors?

Speaker 2 When you're in an auction dynamic, that's not necessarily the situation to really tease out how to set up the relationship for success.

Speaker 2 It might be about price maximization, but that's not necessarily saying, well, what is the shared future vision? How are we going to build something together?

Speaker 2 How are you going to support my business growth? What are the economic attachments that set up appropriate alignment?

Speaker 2 And so auctions have a place for a certain kind of transaction, but that's not necessarily the relationship to build

Speaker 2 a partnership for the long-term future.

Speaker 1 And you guys are looking to buy minority stakes. What ownership percentage are you targeting on your typical deal

Speaker 2 we are typically targeting between sort of 10 15 percent possibly going north of that but staying below 25 percent we like to be relevant we like to own a percentage that means we're an important part of the capital structure we're an important partner but the equity and the value remains with the team they are the people who own the business on a day-to-day basis and it's right that the economics remain with them.

Speaker 1 And you alluded to it, you have a unique right to win. What is your right to win? How do you compete head-to-head with Blackstone, with Dahl, and these really strong competitors?

Speaker 2 That's a great question. And right to win is exactly the kind of question we ask ourselves every time we're evaluating a potential GP.

Speaker 2 One thing that stands out when I question, do we have a right to win, is that the vast majority of our deals to date have been originated outside of competitive auctions.

Speaker 2 And so to me, that's a strong signal that we have developed something,

Speaker 2 you know, that right to win.

Speaker 2 And that these firms aren't just looking to sell a stake to anyone and they're choosing to work with us because they believe we're bringing something beyond capital and they see us as partners who can shape the future of their business.

Speaker 2 Now, I wish I could give you

Speaker 2 a really piffy in a can answer about this is it, this works every time, but we're not bringing a one-size-fits-all approach to these partnerships.

Speaker 2 So our right to win comes from the fact we're a deliberately built solutions-oriented model.

Speaker 2 designed to operate as a one-stop shop for capital and strategic support.

Speaker 2 Some people really gravitate towards the strategic support and that's something we've invested in and I'm personally very proud of.

Speaker 2 You know, we have ability to drive tangible, meaningful change at our GPs.

Speaker 2 Sometimes that's capital formation support, product innovation, procurement, recruiting or other areas that matter to growth and I think we provide a much more hands-on approach to value creation.

Speaker 2 And others really gravitate towards the relationship angle and we make a point of investing in those.

Speaker 2 Sometimes that takes years, but when we do partner, our capital solutions are informed by deep understanding of their business And we've built that trust and respect between our firms.

Speaker 2 One thing that underpins all of this, and this is something that I do think really sets us apart, is we are independent by design. You know, stakes and solutions are all that we do.

Speaker 2 So that independence allows us to be candid and transparent, fully aligned, kind of arise when you're part of a diversified platform.

Speaker 2 That gives us the luxury of clarity of goal and simplicity of agenda. So you put that all together, and I know that, you know, each GP will gravitate towards certain elements of that small gas board.

Speaker 2 But I think it allows us to be a partner that remains relevant for an initial transaction and then for the life of the relationship that we kind of alluded to a second ago.

Speaker 1 And you're English, so you're using very proper language, but what you're saying in your independence is that your LPs are going into your funds that you're backing.

Speaker 1 They're not going into other parts of the platform like some of your competition.

Speaker 2 Yeah. So if a private equity GP is partnering with Hunter Point, they know we don't have a competing private equity business.

Speaker 2 They know that all we care about is the the success of their private equity business, and there's not a Hunter Point private equity business. The same with real estate, the same with credit.

Speaker 2 There's no investment banking business here looking for their investment banking business, and that just makes everything a lot easier.

Speaker 2 They don't have to worry about where information goes, they don't have to worry about us being their partner, but also another element of our business competing with them.

Speaker 2 And that just makes everything a lot easier for us with regard to trust and conflicts.

Speaker 1 One of the most interesting things when we last chatted, I asked you how you avoid auctions because everybody would want to know this and and private equity firms want to know.

Speaker 1 You said a very interesting truism, which is it's impossible if you're looking for five or six different factors and different levers, it's impossible to negotiate those five or six levers across a process with 20 different buyers.

Speaker 1 Talk to me about that and give me a sense or a feel for the kind of customization that you put into your GP stakes.

Speaker 2 Yeah, so auctions are just really difficult if you're trying to

Speaker 2 come up with something bespoke

Speaker 2 because there's the practicality crafting bespoke structures when you've got multiple bidders at the same time is just operationally intense for the GP because they have a day job they want to run their business and for bankers who are trying to execute a fast-moving smooth process so in a competitive setting it's hard to have the depth of conversation needed to tailor something truly thoughtful And second, it's comparability.

Speaker 2 Auctions by design are about maximizing price.

Speaker 2 So once bidders start proposing different structures, kooky structures with different economics, time horizons, or attachment points, the comparisons break down.

Speaker 2 In essence, divergent structures, you've kind of undermined the very essence of what an auction was sort of set out to do. What are GPs asking for?

Speaker 1 Not what you could theoretically offer, but what are they specifically asking for?

Speaker 2 Really, in a bilateral setting, what might look like a price gap becomes a structuring puzzle. So it's not like they're coming to us saying, I want this or that specifically.

Speaker 2 It's a, we would like to find a deal with Hunter Point. We have elected that you are the partner of choice.
And a lot of the time they've said, you know, it's a deal with you or not a deal.

Speaker 2 But the valuation, there may be a gap.

Speaker 2 But that's an important distinction because now we're working directly with a partner to solve together something versus divergent views on value becoming a point of friction.

Speaker 2 And so now you're talking about designing something that reflects both sides' perspectives and setting the stage for the long-term relationship, not just a short-term deal.

Speaker 2 So some of the common levers we're going to use, attachment mixes.

Speaker 2 So that's adjusting the blend between management fee and carry exposure, different attachments between the core and new business lines, different attachments between this business and that business, maybe leaving legacy carry with the team and only attaching to moving forward carry.

Speaker 2 So that allows each partner to suit their preferences and establish the right alignment and lay a foundation for a successful partnership.

Speaker 2 Second, you can kind of start establishing things such as minimum yield features or other risk sharing mechanics.

Speaker 2 And that can balance the near-term stability that we're looking for with some long-term upside, keeping incentives aligned even if performance begins to unfold differently than originally expected.

Speaker 2 And then thirdly, you can get into things like earn outs or earnings. Those can be tied to growth or performance.
Now, we tend to de-emphasize those.

Speaker 2 We would prefer to establish price-sharing alignment up front. But in some cases, they can help bridge comfort levels while preserving fairness to both sides.
And our view is a collaborative mindset.

Speaker 2 These tools can be used to provide thoughtful solutions that work for everyone. And it's also the establishment of bilateral dialogue.
You're not really negotiating against each other.

Speaker 2 You're beginning to start that partnership right in the negotiating table, co-designing a partnership that's going to endure.

Speaker 2 So we just think that that really is a great way to start the dialogue where you're not about winning the deal. It's about setting up a partnership to survive.
And for us.

Speaker 1 So you kind of... you kind of bridge that gap between what they think their carry and their management fees are worth and what maybe you think.

Speaker 1 It's similarly to a structured secondary where you have some kind of preferred or some kind of hurdle so that everybody could be aligned.

Speaker 1 But you also don't want to overengineer it such in such a way that Hunter Point doesn't want to put all of its resources on the table and create this unintentional misalignment as well.

Speaker 2 Exactly. And it's not just about

Speaker 2 who is right on an individual vector. Because we also have different preferences.
People have different time horizons.

Speaker 2 We are solving for a different risk return parameter than an individual deal partner might have.

Speaker 2 A young deal partner versus a founder at different life stages, they may have different cash flow needs.

Speaker 2 And so, everyone is solving not just for what do I think this cash flow is going to actually be, they're also solving for, okay, but how do I feel about what that cash flow is?

Speaker 2 And so, it's a two-level puzzle.

Speaker 1 And you've seen some evolution in the market literally in the last six months in terms of evergreen structures getting converted to fixed or having tender offers or having continuation vehicles.

Speaker 1 There's all sorts of solutions around this issue. You've chosen to be evergreen.
Why is that? And do you see that potentially evolving in the future?

Speaker 2 Yeah, so we see

Speaker 2 these investments as long-term partnerships. And to use sort of

Speaker 2 a simple analogy, it is very difficult to talk to a GP and say we have spent a lot of time met a lot of GPs you are the one for us

Speaker 2 we would like to talk about how we will partner with you grow your business but we would also like to understand how we're going to uncouple this relationship because we need

Speaker 2 we need effectively a pre-wired divorce before we get married because we have a term fund And so from our perspective, it is very important that the fund life matches the investment strategy, matches the dialogue that we're having with our potential partners, and that everything hangs together and

Speaker 2 is a cohesive strategy.

Speaker 1 And you alluded to some of your competitors. You have some fierce competition in the space.

Speaker 1 How do you think about from a sizing standpoint in terms of AUM and what part of the market are you going after? And do you go head to head or do you focus on a niche?

Speaker 2 Yeah, so we certainly have fierce competitors. And I think it's fair to say that that it's still a it's a growing but still a

Speaker 2 still a tight industry and so we know most of our competitors and we get on great with them and so it's a it's a relatively collaborative industry.

Speaker 2 We have been somewhat insulated from head-to-head competition by virtue of our focus on proprietary transactions. And so

Speaker 2 We run into them mainly in auction markets and so

Speaker 2 the majority of our situations is about convincing people that a deal with Hunter Points makes sense in a bilateral setting. With regard to

Speaker 2 the niches that we found ourselves playing, I think we found a really attractive space where people have said that they've chosen

Speaker 2 to partner with someone for a strategic reason and they're looking to

Speaker 2 grow their business with a like-minded partner and that

Speaker 2 that is their primary focus and that they would like to take that journey with us and at that point it's really about hammering out a deal and seeing if they can get there with us versus shopping us against competition.

Speaker 1 I think a lot of funds in any industry would love to have this kind of proprietary relationships, proprietary deal flow.

Speaker 1 How are you able to secure that and what value add do you have to do up front in order to

Speaker 1 create this proprietary deal sourcing mechanism?

Speaker 2 I assume that you're kind of ruling out the fact it's my spark and wit and personality.

Speaker 2 So, convincing a manager not to go to auction isn't about just persuasion. It really is about leaning with partnership.
And so, that starts with showing them what makes Hunter Point truly different.

Speaker 2 The breadth of capital solutions we can offer, the depth of our strategic value add platform, the level of senior engagement that we can offer throughout.

Speaker 2 And those are tangible differentiators we feel that give GPs confidence that the partnership is going to deliver well beyond the initial transaction.

Speaker 2 We really hit on the fact that proprietary deals offer something that auctions can't, that we've kind of touched on already, and that's flexibility and structural alignment.

Speaker 2 We drive at the fact that that can create space for both sides to design something together and to find a true win-win solution.

Speaker 2 When you build relationships directly rather than through a competitive process, you can build trust and alignment from day one.

Speaker 2 So yes, I think 80 to 90% of the market is still intermediated by a relatively small set of banks.

Speaker 2 But in those processes, we think you're reacting to an offering, the sector, the structure, even the tempo are set for you, whereas our direct origination model has kind of inverted that dynamic.

Speaker 2 Now, how have we continued to drive at that? Unintuitively, it's actually been our portfolio, but that's because we've started with outcomes.

Speaker 2 So as we help our existing partners raise capital or launch new products or improve margins, those results are visible and measurable, and they build credibility. Yes, for our GPs, but also for us.

Speaker 2 And then that credibility attracts high-quality GPs, and they value the substance of what we've done. And those conversations then come directly to us.

Speaker 2 And then that origination becomes proprietary and it changes everything. And then we get into that cycle of quality and alignment and fairness without the distortions of a competitive process.

Speaker 2 And it begins to become a flywheel. And then that in turn gives us the ability and the conviction to reinvest in people, capabilities, and our own strategic value ad processes.

Speaker 2 And that's the flywheel in motion: success leading to opportunity, opportunity to growth, growth to success. And that continues to grow and grow.
grow. And again,

Speaker 1 it's this reverse references where you're having essentially happy customers either reference you into processes that you're in or using word of mouth to bring in new customers.

Speaker 1 Tell me about how exactly that happens. So how do your existing, let's call them happy customers, how does that lead to more customers? Tell me exactly.

Speaker 2 There are three

Speaker 2 elements to this. The first is the fact that private equity is still, it's a massive industry in terms of the dollars, but it is still a relatively small industry in terms of word of mouth.

Speaker 2 And so when someone is considering a GP stake, it is not hard for people to say, what do you think of these guys versus those guys, or are you happy with the GP staker?

Speaker 2 And so in many cases, we have sort of just inbounds, and we find out later on that there was some word of mouth referencing. and that

Speaker 2 led to an interest in a transaction with us. Secondly, there is a case where we have decided we would like to partner with someone and many of our GPs are thrilled to serve as references for us.

Speaker 2 And so that is something that we are orchestrating versus being inbound. And then the third element is the fact that

Speaker 2 the work that we have done with our portfolio today now has allowed us to collect a significant amount of data and metrics.

Speaker 2 And as we roll that together and we are able to advertise, this is the body of work that we have provided,

Speaker 2 this is what we have done on these various different sort of lines of value add.

Speaker 2 That provides legitimacy and credibility when we talk to a GP about what we could potentially do with them.

Speaker 2 And so I think of those three things as being sort of how our portfolio has driven increased origination.

Speaker 1 I'm cautious to compare you to a placement agent, but you are indirectly in some way competing against the very top placement agents in the world.

Speaker 1 If somebody's exclusively looking for additional capital, how do you avoid that comparison and how do you keep yourself out of that context and out of that competition with placement agents?

Speaker 2 I understand why there's the comparison to a placement agent, but they really are solving fundamentally different problems.

Speaker 2 So, a placement agent is a transaction-specific solution, and they're great at what they do,

Speaker 2 but you employ them to extend the GP's reach in a specific fundraise at a specific point of time, often in a specific jurisdiction,

Speaker 2 to access new pools of capital, to get a product over the line.

Speaker 2 You know, this is what we're doing. It's a rifle shop.

Speaker 2 Versus a staking partner, on the other hand, is something quite different. It's a long-term, multi-fund, multi-product strategic capital solution.

Speaker 2 And we're not just providing some introductions, we're providing balance sheet capital, institutional capabilities, and sustained advisory engagement.

Speaker 2 That's just a much more holistic offering.

Speaker 2 And so, in many ways, GPs are looking to use both for very different reasons.

Speaker 2 And we coexist incredibly well and have great references or relationships with placement agents and often provide references to placement agents that we think highly of to our GPs.

Speaker 2 So, we operate in the same ecosystem. We often are driving to the same goal, which is successful fundraisers for an individual GP, but we certainly don't view them as competition or even substitution.

Speaker 1 Maybe I could unpack that.

Speaker 2 You referenced the value that you provide to a fund outside of obviously just capital talk to me first of all about the different sources of capital that you bring into a deal and also the different value drivers when we're investing um under point we the main flagship product is a gp stakes um product where we are making equity investments um into the firm um the gps have a range of different uses

Speaker 2 and that is what we've mainly been talking about today. We also have the ability to make

Speaker 2 non-permanent equity investments or to provide financing, so more credit-like investments, all at the GP level.

Speaker 2 And we also have the ability to make financing or credit-like investments at the fund level. And our goal from all of that is to make sure that GPs

Speaker 2 want to start a strategic dialogue with Hunter Point,

Speaker 2 regardless of the exact specific problem, or challenge, or opportunity that they face.

Speaker 2 And

Speaker 2 maybe one, maybe two, maybe three of those solutions are relevant.

Speaker 2 And by fostering that sort of organic dialogue with them, we want to make sure that there is a relevant transaction at the right point. With regard to the strategic capabilities,

Speaker 2 advice and support around capital formation is something that we have spent a lot of time on and have been successful around.

Speaker 2 We have worked hard to build our procurement offering and then have supported GPs in product innovation and development, as well as general business building advice around issues such as succession, talent advancement, and ESG, as well as a bunch of other sort of idiosyncratic issues.

Speaker 2 But it all comes down to being sort of a responsive and respected partner that they can turn to for that piece of advice. We're not looking to run their businesses.
They are the experts in that.

Speaker 2 But our support is to be accretive to the leadership mix that they have.

Speaker 1 You alluded to it earlier, portfolio construction. From a first principles basis, how do you think about portfolio constructions for a GP stakes fund?

Speaker 2 The first thing about portfolio construction is

Speaker 2 you've got to think about position sizing and the risk on an individual GP, as well as how that then flows into the other GPs.

Speaker 2 And so you're not heavily overweight private equity or healthcare private equity. And that was how a lot of people in the space, I think, think about it.

Speaker 2 We, I think, have a slight advantage in

Speaker 2 if you are doing a lot of your deals on a proprietary basis, you have the ability to play offense

Speaker 2 because we are now able to choose the kind of asset classes and sectors that you want to invest in.

Speaker 2 You're not dependent on being shown what you're going to invest in.

Speaker 2 So, it gives us the ability to start with conviction, to identify where we want exposure, rather than just simply reacting to what's for sale.

Speaker 2 So we can focus on asset classes and geographies where we think there's going to be secular inflows, there's strong industry structure and long-term fundamentals, and then start seeking out the right partners in those spaces and then start knocking on doors.

Speaker 2 And that shift in posture changes everything.

Speaker 2 So instead of following the deal flow, we're shaping it, and it allows us to align portfolio construction with strategic intent and not just opportunity availability.

Speaker 2 And I think our recent transactions are good examples of that.

Speaker 2 So we identified compelling themes in private credit, both direct lending and outside of direct lending, as well as in mid-market infrastructure.

Speaker 2 We thought all of those areas were benefiting from structural demand and good risk-adjusted returns that we thought were going to persist.

Speaker 2 And then we executed targeted outreach, built relationships with great GPUs, and then executed on transactions. And I think the simple analogy is like when you buy an apartment.

Speaker 2 The first thing you do is you pick the neighborhood, then you pick the apartment.

Speaker 2 And so, that's what we really think about is starting with conviction, evaluating the opportunity set, and and then beginning to drill down.

Speaker 2 So for us, portfolio construction starts with origination because I think it improves investment quality and allows us to deliberately deploy capital into areas of conviction.

Speaker 2 And that, I think, really allows us to then have

Speaker 2 risk mitigation because you're by nature deploying into different sectors of the market.

Speaker 2 but also take advantage of a thoughtful approach to making sure you're getting behind the themes that you want exposure to.

Speaker 1 You use this term mid-market. It's probably the most undefined term in all of private equity and all of alternatives, arguably.
What is mid-market to you and what do you focus on from an AUM basis?

Speaker 2 Yeah,

Speaker 2 it's a really difficult term to define

Speaker 2 and it's hard to sort of put an AUM number on it.

Speaker 2 I just think more conceptually.

Speaker 2 So I see the market evolving along two parallel tracks.

Speaker 2 So on one hand, you have these large global firms, the multi-product platforms of the scale and resources and reach to operate as what I call like beta generators.

Speaker 2 And they provide broad exposure, integrated solutions, and the kind of institutional access that many investors value.

Speaker 2 And those firms, they're going to continue to prosper and they're going to expand into adjacent asset classes and deepen their global capabilities.

Speaker 2 And then on the other hand, you have alpha generators. And those are typically these mid-market firms.
I think they're often in that $20 to $50 billion AUM range, but don't hold me to that. And

Speaker 2 that compounds from that category defining edge. They know what they're great at.
They expand thoughtfully, but they've managed to preserve that focus and culture.

Speaker 2 And as you think about the market, I think both are essential.

Speaker 2 Sector specialists and focus platforms are always going to sit alongside these global consolidators, and they serve different purposes and meet different investor needs.

Speaker 2 So it's a bit like investing in itself.

Speaker 2 Some investors want the broad S ⁇ P 500 ETF, others want to own a single share of assets, sorry, of Apple, and many people want to have a bit of both, and there's room for both.

Speaker 2 And for us, we're focused on investing, supporting these,

Speaker 2 and this I recognize, Park Asmark, great.

Speaker 2 We're interested in supporting these sector specialists and then using our strategic capabilities to give them some of the tools and support that allows them to have access to capabilities that they might not be able to have

Speaker 2 were they not to partner with Hunter Point.

Speaker 1 There's a portion of the market, although it gets smaller every day, that these purists that look at GP stakes as being misaligned and

Speaker 1 don't love that part of the space. What do LPs say to you about the misalignment of GP stakes and performance and funds?

Speaker 2 It's really interesting you say that because

Speaker 2 I used to get that question a lot and it's only now you mention it I get it less and less.

Speaker 2 I really don't hear that anywhere near as much as I used to,

Speaker 2 and I think that is because

Speaker 2 there is research out there that has talked a lot about the fact that performance has not degraded in firms that have done a stake versus firms that have not done a stake. I think people have seen

Speaker 2 that

Speaker 2 GP stakes have supported the institutionalization of these firms. I think people recognize

Speaker 2 that the strategic support that we at Hunter Point bring can make a firm stronger.

Speaker 2 I think that when they realize that we are bringing procurement that saves the portfolio that an LP owns money, that is generating net returns to the LPs.

Speaker 2 And so I do recognize that transactions, if poorly structured, can be destructive.

Speaker 1 But I think the LP community recognizes that that isn't in the gd stakers or in the seller's interest um and so we do hear that question less and less and and i haven't heard it in a while ever wanted to explore the world of online trading but haven't dared to try the futures market is more active now than ever and plus 500 futures is the perfect place to start plus 500 gives you access to a wide range of instruments s p 500 nasdaq bitcoin gas and much more Explore equity indices, energy, metals, forex, crypto, and beyond.

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Speaker 1 So just double-click more on this. So you mentioned that you're able to use credit to help the portfolio returns.

Speaker 1 What are some other explanations for why GP stakes have led to better returns for LPs in those funds?

Speaker 2 Yeah, so one of the big things that we have generated is

Speaker 2 our procurement platform. So we're now delivering approximately $63 million in annualized savings through our program.
We have seven professionals here with 59 individual programmes.

Speaker 2 So that's consolidating the spend of our GP's portfolio companies and driving real savings. And that's accruing to the benefit of the LPs in those underlying GPs portfolios.

Speaker 2 That is good for us in that it drives better performance for the GP.

Speaker 2 But the direct beneficiaries of that is the LPs in those GPs.

Speaker 2 That is just one example of us helping to support a GP and for the benefit of them, but also their customers.

Speaker 1 I would also argue generational transfer.

Speaker 1 If 80% of the work is being done by people that own less than 10% of the fund,

Speaker 1 obviously, if you redistribute that to the people that are creating the value, creating the upside, that could unlock some pretty nice returns.

Speaker 2 Exactly. I do think that it's a case-by-case basis, but for many people or for many GPs,

Speaker 2 a GP stake is the moment to have conversations around succession, around

Speaker 2 capital structure, realignment and equity distribution. We've seen the establishment of ESOPS and LTIPS to lock in key team members.
And we are looking to buy into established franchises.

Speaker 2 And so we want to know that the firm is in good standing and good health and the key people are locked in.

Speaker 2 And so many LPs see the investment of a GP staker into a GP as a sign of validation that the firm is in good health. So I definitely think that that does increasingly play into the system.

Speaker 1 What percentage of your money is going into the primary and to the business versus secondary, typically?

Speaker 2 It really varies on a case-by-case basis.

Speaker 2 And I think it's

Speaker 2 at times somewhat reductive to think secondary, bad, primary, good.

Speaker 2 The thing that we really focus on is:

Speaker 2 does this change the way that people feel about the business when they wake up in the morning? And more importantly, what was the rationale for this transaction?

Speaker 2 In many cases, our GPs would love to sell just a dollar of their GP and get access for all of the strategic capabilities of Hunter Point

Speaker 2 without having to sell anything.

Speaker 2 And the transaction is a

Speaker 2 a byproduct of them wanting a partnership.

Speaker 2 And for us, we like to put our money into investments that we feel are very attractive.

Speaker 1 How much do you look at your role as making money on the buy versus on the sell?

Speaker 1 In other words, the deal is structured in such a way when you buy that at least the downside and somewhat of a mid-case is quote-unquote guaranteed versus somebody that's making kind of,

Speaker 1 to take it to the extreme, the venture-like portfolio where nine will be losers, one will return a thirty X and the fund will do a three X.

Speaker 2 I specifically don't spend a lot of time thinking about

Speaker 2 the upside moonshot win.

Speaker 2 I think we have partnered with

Speaker 2 a multitude, a litany of really high quality GPEs, many of whom have really

Speaker 2 high ceilings, but that isn't what we're underwriting to. And we're certainly not underwriting to

Speaker 2 the

Speaker 2 mythical takeout price at an insanely high multiple.

Speaker 2 What we're focused on is

Speaker 2 buying sensibly, protecting our downside, and then working with them to execute on their strategic vision. And if we do that, we recognize that all of our GPUs will

Speaker 2 be good.

Speaker 2 And then we recognize that there's a lot of optionality to the upside from there.

Speaker 1 So So let's talk about the downside case. You've been in this industry since 2014.
You've certainly either been in deals or seen deals go south.

Speaker 1 In the case that they do go south, what are the most common reasons that GP stakes fail?

Speaker 2 I think that the most common reasons that GP stakes fail are either

Speaker 2 misalignment

Speaker 2 and a fundamental misunderstanding of what the partnership was meant to do or how the transaction was going to impact the GP post-the deal,

Speaker 2 or

Speaker 2 industry trends and backing a mediocre GP or versus in a that stumbled into a tough time for a specific sector. It is very rare for someone to back a very, very bad GP.

Speaker 2 I just don't think that happens. Everyone in this industry is very competent and does their work.

Speaker 2 But the two cases are misalignment, whether that existed before or the transaction led to misalignment, or a mediocre GP and then a secular downturn in a specific sub-asset class.

Speaker 1 And the latter being hard to predict or uncontrollable.

Speaker 2 Yeah, although I think you can do your work on both of those. Now, it is obviously, you can't rule it out, but I think you can do a lot.
I think you can do a lot of work.

Speaker 2 And I think that that is where we spend a lot of time. And so we spend a lot of time on

Speaker 2 the alignment point. And that is why I think it is nice to not be so dependent on auctions because we have more than this six weeks of an auction process to get to know these GPs.

Speaker 2 We have long-standing relationships. Often we spend months, if not years, getting to know them.
Does that rule out everything?

Speaker 2 Maybe not, but it gives you a much, much better chance of understanding the inner workings of those firms, understanding the people, how they're going to act under pressure.

Speaker 2 So, that's really important for us on the first one.

Speaker 2 And on the second point, that's where proprietary transactions allow you to proactively select the asset classes that you want to prioritize versus being shown a GP and then beginning to do your work on the asset class.

Speaker 2 I think that framing of

Speaker 2 asset class first, then GP is much healthier versus GP and then doing the work on the asset class through the lens of wanting to do the deal on the GP. Yeah,

Speaker 1 I call it a source of negative alpha.

Speaker 1 So information, positive information could be a source of positive alpha, but if you're constantly around, if the 10 people around you are essentially fools and constantly sending you bad alpha, bad information, at some point you're going to internalize some of those ideas.

Speaker 1 So even being subject to people reaching out to you on processes will lead to larger failure rate than being opt-in to an asset class.

Speaker 2 Yeah, exactly. And you know, if you are,

Speaker 2 if you are,

Speaker 2 if you're speaking, if you are looking at deals and you see five ice, you're being shown five ice cream shops, all of a sudden you're going to start saying, well, I'm going to buy the best ice cream shop.

Speaker 2 And if the only, if everyone is talking to you about ice cream shops, they're all the main experts on ice cream shops, you're going to be influenced heavily because they're the experts and it's very difficult to remain your your your um your emotional uh distance and discipline versus the other way which is taking a step back and saying whoa do i want to own an ice cream shop first and foremost which i think is a much healthier way to approach the industry and adding to that complexity is that the reason these ice cream shops the reason there's five of them is because they're having difficulty fundraising, so they really need your services.

Speaker 1 So they're adversely selected.

Speaker 2 Yeah, now I do spend, I have spent a lot of time thinking about the level of asymmetric or adverse selection combined with asymmetric information in auction flow.

Speaker 2 So yeah, that is something that is not lost on me.

Speaker 1 Speaking of downside risks, key man risk, how much do you worry about that? And how do you think about key man?

Speaker 2 It is something that is

Speaker 2 a very important topic in the space.

Speaker 2 It is something that you need to think about very carefully and underwrite.

Speaker 2 It is something that you need to understand are we taking or are we not? I.e. is this firm a broadly institutionalized business or is it a founder dependent business?

Speaker 2 It is something that you can look at

Speaker 2 solving structurally through a period of time through key man insurance and through put rights but fundamentally you have to make sure you are confident with

Speaker 2 is this firm that can get through that succession now again

Speaker 2 this is where I think it's really important that you have proprietary origination because that is not something that you are going to be able to solve in a lot of cases

Speaker 2 by getting to know a firm over a six-week period and so understanding how everyone at that firm operates, how decisions are made, how compensation works, how carry is distributed, how equity is distributed, and how that has ebbed and flowed over time.

Speaker 2 Is there an error parent? Who do the LPs look to? Building up that holistic picture is really important before you can really make a decision. So it is something we spend a lot of time on.

Speaker 2 And that, by the way, is why I really like GP stakes because you can spend the time working through the very specific

Speaker 2 waterfalls of the various funds that they have and tweaking each of the assets, and playing with all of the variables, and getting into the math.

Speaker 2 And then you wrestle with the broad conceptual question of dependence on key man, and it's that left-brain, right-brain thing that makes the space so fascinating.

Speaker 1 And you're able to spend all the time because the transaction size is large enough, so it incentivizes you to do the work, it doesn't become inefficient, yeah.

Speaker 2 And you need the time to let these things breathe. And in

Speaker 2 a dynamic, organic partnership, like like partnership information, they're happy to spend the time.

Speaker 2 And also, they're dealing with one potential buyer versus in an auction dynamic when they're trying to do this with six to eight other people, it's just not practical.

Speaker 1 How critical to your strategy is LP-driven sourcing, meaning LPs are coming to you to solve a problem with the GP that otherwise they want to back?

Speaker 2 Now,

Speaker 2 that's interesting, and that is something that we're increasingly seeing more of.

Speaker 2 We

Speaker 2 do get LPs that say, this is a GP we think greatly of, and if you were to do a deal, we would be interested in co-investing.

Speaker 2 We have LPs that have nothing, no agenda other than

Speaker 2 they would like us to do good deals, and they say, hey, I don't know if you know this GP, but we think highly of them, and we've told them we think highly of you. You guys should talk.

Speaker 1 And that has to be a pretty strong signal in that.

Speaker 1 The customer is coming to you and saying, we like this product. You should really take a look at this.

Speaker 2 Yeah,

Speaker 2 it's really fascinating when that happens.

Speaker 2 And it's obviously they look at it with a different lens, right? Because an LP is making an individual decision, which is what do I think their net returns are going to be on the next fund.

Speaker 2 And we have a bunch of different considerations, but it's certainly a strong signal that we should take the time to take the look and really begin to understand what is going on under there.

Speaker 2 And even if it doesn't mean it's a GP stake for today, that's what's interesting about us having all these different products to make sure it's relevant. We can establish a dialogue for the future.

Speaker 2 And if nothing else, it's a great piece of data that we can flow into how we think about everything else that's going on in this ecosystem.

Speaker 2 And so those dialogues, if nothing else, inform the broader view.

Speaker 1 I've heard a lot of people in the GP stakes industry use this frame that they get to a certain return with the legacy management fees and maybe some carry.

Speaker 1 And the deal really, the break-even is raising the next fund and making sure that the next fund is done.

Speaker 1 Is that kind of where the math takes you, and that's what you're really underwriting in terms of the base case?

Speaker 2 I think that generally works. It really depends on when you buy in versus a fundraise.

Speaker 2 I think it really depends on the assumptions that you make on that next fundraise and your assumptions around the carry. I think that generally works,

Speaker 2 but

Speaker 2 I think

Speaker 2 that's somewhat simplistic broadly.

Speaker 2 Yeah.

Speaker 2 Case by case.

Speaker 1 It's Q4 2025.

Speaker 1 You do this,

Speaker 1 You go through this process of figuring out

Speaker 1 the next segment of the market to be opportunistic in. What are you like Q4 2025?

Speaker 2 Well we we've been doing a lot of work in the sectors that we've already alluded to.

Speaker 2 We have seen a lot of

Speaker 2 work in infrastructure, which is a space that we are really interested in. We've consummated a transaction that we're excited about,

Speaker 2 but that's a space that we remain constructive on. And we are thrilled with our partnership in real estate.
But real estate is a big space,

Speaker 2 and that's a really fascinating space for us to continue to have dialogue in. Private credit is something where we have some exposure,

Speaker 2 but there are sub-asset classes within there that we continue to have dialogue around and are very interested in. And while we haven't prioritized private equity

Speaker 2 for a little period of time and we

Speaker 2 feel vindicated by that decision.

Speaker 2 We have got some really interesting dialogues with firms that we think are very attractive and fit the dialogues that we or fit the parameters that we discussed earlier.

Speaker 2 There are various different neighborhoods we're looking in. We have to because it's very difficult to call your shop and know you're going to execute.

Speaker 2 But we're really excited. Now the overall takeaway is we are very excited about the pipeline, which is as active as it has been at any point since I've been at Hunter Point.

Speaker 2 And I put that down to the fact that we've been working very hard on the thematic generation and the outreach, and the fact that the work that we've done with our portfolio and the referrals that we're receiving, and I think the increased brand resonance that we have has allowed us to see sort of more throughput than we have done before.

Speaker 1 What are some painful lessons you've learned in the past two years of launching Hunter Point and being in a space now at Hunter Point?

Speaker 2 Painful lessons. Well,

Speaker 2 plenty.

Speaker 2 But I'd say the

Speaker 2 two that would jump out most, both of which were humbling. The first was around education.

Speaker 2 So I'll admit early on,

Speaker 2 having joined Hunter Point and come from Blackstone, I underestimated how much context setting and explanation the market really needed away from an auction environment.

Speaker 2 So in proprietary settings, there's not a highly qualified banker running interference or front-loading the process. And then that responsibility falls on us.

Speaker 2 So, I had to learn to slow down, to explain not just the mechanics of GP financing and what I wanted to pay, but the intent behind the structure, and to meet people with where they were in their own process of education around GP stakes.

Speaker 2 And that took more time than I expected. You know, I do this all day, every day,

Speaker 2 but I've come to appreciate that taking the time leads to better outcomes and actually a stronger relationship and partnership with the people on the other side of the table.

Speaker 2 And then related to that, the second lesson was patience. So when you're building something new, there's a natural urgency and a desire to prove the model, you know, crack the case and move quickly.

Speaker 2 And I felt that acutely.

Speaker 2 But you learn that relationships in this space don't necessarily operate on your timeline. and they are going to develop at their own pace.

Speaker 2 Some of the best partnerships today started as casual conversations a year ago and really long before anyone really even thought about a transaction.

Speaker 2 So you put those together, and the humbling realization was you can't just will trust or success into existence.

Speaker 2 You kind of have to earn it. You kind of have to keep showing up.
You kind of have to listen more than you speak. And you kind of have to let credibility build over time.

Speaker 2 And that's not necessarily easy for someone who's wide to move fast. But you learn in this business that patience isn't necessarily passivity, it's commitment.

Speaker 2 And those two lessons, I think, have made me a better partner to my GPs and definitely made me a better investor.

Speaker 1 I had to coin a term, I call it strategic patience, which is I'm being patient not because of passivity, but because I'm being strategic. Because I also suffer from this problem.

Speaker 2 It's really hard.

Speaker 2 It's really hard to

Speaker 2 feel like you'll do.

Speaker 2 I'm deliberately choosing to do nothing versus I'm doing nothing, and to make sure that you are doing the former, not the latter, and to be okay with that. But

Speaker 2 it's a skill I've not yet mastered, but I am working on.

Speaker 1 What's a Hunter Point deal that you would like people to send you today, Q4

Speaker 1 2025, in terms of AUM, sector, or things that really fit your box today?

Speaker 2 I mean, we're open to private markets broadly, but if there is a GP

Speaker 2 that has high quality performance and more importantly, or just as importantly, is entrepreneurial, has high integrity and is interested in partnership

Speaker 2 with the view towards sharing a growth journey, we would love to have that conversation.

Speaker 2 And there's different modes of partnership and collaboration. There's different modes of getting a deal done and there's different ways for us to support them.

Speaker 2 But

Speaker 2 that's the kind of people we'd like to talk about.

Speaker 2 And even if they're not ready for a transaction today,

Speaker 2 to the prior point, it's always worth starting a conversation.

Speaker 2 The number of times I hear from a GP, like, oh, I didn't expect this, or, oh, I didn't know this is what you guys did, or oh, I wish I'd known this earlier,

Speaker 2 because people think we're deal guys.

Speaker 2 But really, it's relationships and

Speaker 2 starting that early when there's no immediate need for capital.

Speaker 2 Treat us as a long-term research. Get to know us.
That builds trust. it builds clarity, it builds fit.
And it does mean that you understand who we are, what we can do when there is a need.

Speaker 2 And that's when we can move quickly because we already know each other, we already trust each other. So if people are interested to getting to know us, send them our way.

Speaker 1 And perhaps an awkward question, but at some point, you decide both to go into a proprietary deal. Do you ever make it explicit that you only deal with proprietary

Speaker 1 transactions? And how do you approach that issue?

Speaker 2 No,

Speaker 2 we show up to every auction, and we don't discriminate on auction versus proprietary. We have just found better partnerships and

Speaker 2 better partnerships in the proprietary channel today. But some of our great partners we found in auction channels, we have just had greater success in our proprietary dialogues.

Speaker 1 What's one piece of timeless advice you would have given a younger Melvin just graduating from Harvard Business School in 2011 that would have helped you either accelerate your career, maybe avoid some of those mistakes?

Speaker 2 I would say

Speaker 2 that my most important teachers are still ahead of you.

Speaker 2 So I think at the time when I left, I thought that the learning curve was about to flatten out. But in reality, that's when it really began.

Speaker 2 I've been lucky to work alongside some exceptional leaders and mentors.

Speaker 2 many of whom have actually become very close friends and all of whom operated with like such incredibly divergent styles. it's remarkable.

Speaker 2 And the biggest lesson is to stay open, watch how people operate, watch how they make decisions, how they handle pressure, how they treat others.

Speaker 2 And I wish I'd asked people more,

Speaker 2 you know, why are you doing it this way? How are you thinking about this?

Speaker 2 And it's only more recently, you know, not in an accusatory way, but to say like, hey, I'd love to pick your brain because I'm trying to learn from you.

Speaker 2 And then take what you want from each of them. I don't think you want to copy anyone wholesale.

Speaker 2 I want to take the pieces that resonate, the habits, the instincts, the bits that are authentic to you, leave the bits that you don't like.

Speaker 2 And then over time, I think those fragments start to add up to your own voice and your own way of leading.

Speaker 2 Because I think that's the best way to kind of grow and educate yourself, not through imitation, but by accumulation.

Speaker 2 So that's something

Speaker 2 I've tried to focus on.

Speaker 2 Once I realized and clicked how much I was learning from people, especially as people move around and you don't have access to them as much.

Speaker 2 So that would probably be the biggest thing for me.

Speaker 1 Well, Melvin, this has been a masterclass on GP Stakes.

Speaker 1 Looking forward to continuing this conversation live and thanks so much for taking time.

Speaker 2 I really appreciate it. I love the podcast.
Great to chat. Hope to see you soon.

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