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In this episode of the NextWave Private Equity podcast, Avi Kalichstein, co-founder and CEO of Hunter Point Capital, joins host Bridget Walsh to discuss the growing market for GP stakes.
The private equity landscape is shifting, with strategic capital becoming a vital piece of the puzzle. Hunter Point Capital's CEO, Avi Kalichstein, shares his insights on the nuances of GP stakes investing. Listen to find out how strategic alliances and smart capital solutions are key to thriving in the modern financial ecosystem.
Key takeaways:
Hunter Point Capital champions strategic growth for investment managers, essential for navigating the economic shifts and enhancing value in private equity.
Investment selection hinges on proven success, cultural alignment and potential for expansion, coupled with tailored strategic guidance.
Hunter Point Capital is pioneering new ways to support GPs with innovative financing solutions, reflecting the sector's growth and the need for diverse capital strategies.
You can also listen to this podcast on Apple and Spotify.
Teaser
Welcome to the EY NextWave Private Equity podcast, where industry leaders come together to discuss emerging opportunities and industry trends shaping the global private equity landscape.
Avi Kalichstein
What's happening in the GP landscape broadly, is an echo of what happened in the corporate world maybe decades ago.
Bridget Walsh
That's Avi Kalichstein, co-founder and CEO of investment firm Hunter Point Capital. I'm Bridget Walsh, EY's Global Head of Private equity.
Walsh
In this episode, Avi will be sharing his views on GP stakes investing. Hi, Avi, welcome to London, and welcome to the podcast.
Kalichstein
Thank you very much. It's great to be here with you.
Walsh
It's great to have you here today.
Walsh
Do you enjoy London?
Kalichstein
I love London. So I lived here as a student for a year.
Walsh
Oh, where did you live?
Kalichstein
I lived on Goodge Street off the Tottenham Court Rd.
Walsh
Not far from here. You were really close.
Kalichstein
No, no, I walked around here a lot. We used to go to a place called Bar Italia here at 2 in the morning when I was a student. You could get, you know everyone was having an espresso out in the middle of the road.
Walsh
What was your journey to setting up Hunter Point and being here today?
Kalichstein
Well, I started my career in the Financial Institutions Group at Goldman Sachs and had incredible training from some extraordinary mentors there in the mid-90s. And so that was a great period of learning for me.
Kalichstein
And I moved on to be a Managing Director of JC Flowers and Co, where we were at the forefront of the private equity world in financial services. So I've spent the bulk of the past, I guess, 25 years or so in financial services investing.
Kalichstein
After JC Flowers, I moved on to more entrepreneurial life and I found my way to this GP stakes world, which is a subset, obviously, of financial services more broadly. So I moved from the sort of insurance and banking areas into asset management.
Kalichstein
And this was an area that I thought held a lot of promise. The industry itself didn't think of itself as having companies. They were just fund managers. And so that evolution I found thrilling.
Walsh
It comes across. So, Hunter Point Capital was set up in 2020 and is relatively new. Could you give an overview to our listeners of what Hunter Point does please?
Kalichstein
Of course. We set up the firm in 2020 to be a capital solutions provider to GPs and the first thing we did was to see a market opportunity to be a strategic partner for the next generation of leading lights in the alternative investment management business. So, these are private equity firms, private credit firms, real estate and infrastructure managers who are aspiring to take their businesses to the next level that really create enterprise value.
Kalichstein
And we thought there was no one else doing this and it would be a good opportunity for us to become that strategic partner of choice for them.
Walsh
Can I delve a little bit more into this capital solutions provider? What was the need, Avi?
Kalichstein
Well, I think in terms of GP stakes, which was the first area we tackled, there has been a tremendous amount of capital flowing into private markets over the past two decades. More and more managers have achieved scale, so there's been more opportunity for them to think about their businesses as they have grown precipitously over the past, let's say decade.
Kalichstein
There's also a backdrop of macroeconomic complexity and that can range from interest rates and inflation to geopolitical instability around the world, domestically etc. And when you put those two, sort of, cascading influences together, more and more GPs are thinking about how their businesses can grow strategically and what that means.
Kalichstein
So there's a capital need in some instances to start new businesses, to commit more to their own funds for some M&A in certain instances. But there's also a question of, how do we prioritise all these opportunities in front of us. And so that's what I think created the need for a strategic partnership.
Walsh
A capital need essentially, and Avi I think it's really interesting when we look at our global PE ecosystem and the trillions of dollars invested in PE and these sort of spin-off businesses, whether it's secondaries or GP investing.
Kalichstein
Sure. Well, I think GP stakes is a good example of a business that to some degree is derivative because its growth has been fuelled by the growth in private markets broadly. Secondaries is another one.
Kalichstein
Our newest initiative is to provide non stakes, but financing for GPs, both net asset value loans to funds as well as preferred solutions to GPs. This is another market that's derivative, meaning its growth has mirrored the growth in private capital that's been raised at underlying firms.
Walsh
And in terms of GP stakes, again, if we look at that as a market and the dynamics of that market, you've been very fortuitous in when you set up Hunter Point when you mentioned the geopolitical situation and the challenges that private equity has seen, is this demand for capital going to continue?
Kalichstein
I predict it will accelerate, but I think the factors of it of the acceleration were underlying in the industry before any of the current kind of geopolitical turmoil, or even the interest rate spike that we've seen over the past two years. And this goes back to groups of managers thinking about how they can take advantage of situations, grow as their LPs have supported them into new product areas and new geographies and do more with their businesses than just have a series of funds. You know, fund one, fund two, fund three, fund four.
Kalichstein
And as these businesses evolved into multi product, this next generation of leadership taking over, all these sorts of questions or existential questions and prioritisation questions came to the fore.
Kalichstein
So I think that's what was driving this transformation of GPs from fund managers into business owners. That's really that big transition.
Kalichstein
The turmoil and the interest rate market though has I think, created a bit of a catalyst, because fundraising is harder, denominator effects or influencing LPs more broadly and exits are delayed, certainly in private equity. So when you put all those things on top of the underlying dynamics, it's created, I think a more precipitous need for capital.
Walsh
Yeah, a capital need. Correct.
Kalichstein
Exactly.
Walsh
You've made some investments in some very high profile, quality names. What do you look for when you're making those investments?
Kalichstein
It's a great question. There's a chemistry that creates some of these great firms, some firms in which we've invested. And I think what's common to these businesses, is they're all excellent investors. So they have long and distinguished track records of investing. So that's a necessary condition, but not a sufficient one.
Kalichstein
And you start to add the atmospherics around their businesses. So the culture within them, do they have an opportunity for growth of their people.
Kalichstein
Do they have the support of their investors to continue to build their businesses? Are they in strategies that have runways for growth so that they're not, you know, trapped in a niche. And do they have an ambition to grow the enterprise value and not just rest on their laurels? So you need a combination of all those factors to make a winning GP stake.
Walsh
And what's intriguing about Hunter Point is you're providing much more than capital. It's this strategic value that you're bringing? And when you mention household names like that, what can you bring to them?
Kalichstein
There's something specific that these firms want from us in terms of how they're looking to grow. And that could be in the case of L Catterton, they're looking at our credit expertise to try to help them grow credit business.
Kalichstein
In another case it could be to think about succession planning. In another case it could be about diversification of ownership. It could be about adding a business unit.
Kalichstein
So I would say it's different in each of these cases and none of the firms I mentioned is in a remedial situation, they don’t need our help, but they're thinking that if we work together then they can achieve their goals faster with more certainty.
Walsh
So it's like the strategic advice any business owner is looking for in terms of succession, diversification, etc.
Kalichstein
That's right. But having a partner who's invested in your business is different from having an advisor who's a vendor of some kind of service.
Walsh
What made you approach the market like that when you set up Hunter Point?
Kalichstein
Well, we had an experience looking at the market and seeing other GP stakes players being more transactionally oriented. And we thought there really was a need for this. We knew a lot of GPs, so I'd had some experience doing this before.
Kalichstein
We saw the need from the GPs, the lack of provision from the rest of the market and that's what creates opportunity.
Walsh
And when people are looking at listing versus selling a GP stake, what are they weighing up in reality?
Kalichstein
Well, I think what's happening in the GP landscape, broadly, is an echo of what happened in the corporate world maybe decades ago, which is the proliferation of different types of capital available to companies broadly.
Kalichstein
So if you think about the corporate world, companies could stay private, they could go public, they could take a minority investor, they could take on some debt, there became hybrid solutions, mezzanine and preferred and all sorts of different types of capital to suit their needs.
Kalichstein
So what I think we're seeing in the GP world is the evolution of, and the and proliferation of these same kinds of parallel products. So GP stake is a permanent minority equity partnership.
Kalichstein
Obviously, going public, you know, has the ramifications that it does, but there are other financings to do. They could be debt, they could be hybrid, and these, the proliferation of these products I don't see as somehow unique to the GP world. It's just an echo and an evolution of what happened before in the corporate world.
Walsh
So does that make you super excited for the multiple opportunities that there will be here? I mean we've got listing as an opportunity. You've got GP stakes. When you look at the corporate world and all the financing solutions that there are, does that just open up a whole realm of opportunity?
Kalichstein
Absolutely. I really do view this as a sort of awakening of the world to the fact that GPs are businesses.
Kalichstein
That's really fundamentally what this is all about. And so as that matures, I think you'll see, again just an explosion of activity. You've seen already a great acceleration, I think, in 2005 there was one GP stake deal done and now you average about 30 GP stake deals a year, something like that.
Kalichstein
So I think you'll see a great growth in preferred financings for managers in NAV loans at the fund level in GP stakes.
Kalichstein
Listing is a little trickier because not every company wants to be public, and so that's a personal preference, and there's to some degree a size question. You know, you need to be of a certain size to be able to go public. But I think this is the early innings, as we say in America, and a long game.
Walsh
You're clearly very entrepreneurial, were you that kind of kid at school? Were you the kid selling the comics at the school gate?
Kalichstein
I wasn't. I was a math geek when I was at school. That was my passion. But I had a family friend who was in investment banking and I asked my mother when I was four years old, what does that guy do? And she said, he's in investment banking. So I decided that I should be in investment banking at four years old. So that was always in my mind where I was heading. But in school, I was a math person and that was my great love.
Walsh
Well, a great background in this world. You can't go wrong with math. That's what I keep telling my daughters.
Walsh
Thanks very much Avi, it's been an absolute pleasure to have you here today. Thank you.
Kalichstein
I've really enjoyed it. Thank you so much.
Walsh
Thanks.
Walsh
That's it for this podcast but do subscribe for more insights from the private equity industries top professionals.
Walsh
From me, Bridget Walsh and Avi Kalichstein, thanks for listening and goodbye.
Teaser
Thanks for joining the EY NextWave Private Equity podcast. For more insights and perspectives visit, ey.com/privateequity.
End of podcast.
