GP Stakes, Co-Investments Rise as LPs Seek Deeper Partnerships

Institutional investors are seeking a more-hands-on approach with their illiquid investments and, to get access, are seeking deeper partnerships with their managers. 

According to Dynamo Software’s fourth global survey of limited partners, LPs are becoming less interested in handing over money to asset managers and are increasingly choosing to invest directly alongside their managers or to invest in those managers.  

According to the report, the percentage of LPs relying on external managers fell to 70% in 2025, down from 86% in 2023. At the same time, allocators are looking to increase their investments in alternative investments, with 54% of surveyed LPs saying they intend to do so, the fourth year of growth.  

Dynamo sees an increase in co-investment activity, with 56% of respondents saying they planned to invest directly alongside their managers, a five-percentage-point increase from the prior year—Dynamo noted that this may be due to LPs wanting greater control over their investment strategies.  

“Asset allocators seem to be signaling that they want a greater say in how their capital is deployed,” said Dynamo Software CEO Hank Boughner in a statement. “To remain at the center of value creation, GPs may benefit from doubling down on strategies that foster transparency and trust in their investor relationships.” 

Compelling Upside 

Along with co-investments, GP stakes are gaining popularity among LPs that want deeper exposure to their managers’ private markets investments. These stakes, typically sized at about 20% of the GP firm, allow LPs access to the fees generated by their managers.  

“GP stakes are compelling for allocators because they provide a path to receive equity-like upside from the underlying economics of the management company itself, along with the ballast of recurring management fees,” says Tom Bratkovich, CIO of DCA Family Office.  

An institutional investor’s long-dated capital can also help a GP scale and diversify, even at times when fundraising slows down. LPs can get stable cash flow with growth potential, while GPs get fuel to keep building, Bratkovich notes.  

Large institutional investors like sovereign wealth funds are increasingly active in investing in GP stakes, investing alongside alternative asset managers. Notable recent deals include Temasek and Hunter Point Capital taking a stake in Nuveen Private Capital, and the purchase of a stake in Hayfin Capital by Mubadala and AXA IM.  

“Getting a slice of management-fee revenue is understandably appealing for investors who’ve spent years on the paying side of that stream,” Boughner says.  

GP stakes can also give the LP preferred access to larger, direct deals and co-investments. 

“This is a way for investors to be able to get exposure to highly profitable businesses that are growing at a pretty rapid clip,” says Charles Korchinski, director of private capital advisory at Eaton Partners.  

One group of investors increasingly interested in GP stakes are insurers, Korchinski notes. 

Facilitate Future Commitments 

“Insurance companies that need to deploy significant amounts of assets into credit strategies and private credit strategies oftentimes will partner with a manager that can provide them with that exposure in exchange for significant scaled LP commitments,” Korchinski says. “Oftentimes, they’ll seek to really enhance the alignment that they have with the manager by purchasing equity in the managers overall management company and platform.” 

Succession planning is one of the key reasons for GPs to choose to sell a stake in their firm—offering retiring founders a way to unlock liquidity, while also easing the transition of leadership and ownership to the next generation. 

“In some cases, [the founder owns] a significant portion of the equity of the management company, and these businesses can be worth significant amounts of money,” Korchinski says. “In some cases, the next generation may not have liquidity to buy out all the owners, so they could use [a] GP-stake transaction to get some liquidity for a founder that’s going to be stepping away while also providing a runway for the next generation to take ownership.”  

Boughner notes that an unprecedented number of tenured GP senior partners are about to sunset their careers. These professionals are looking to retirement and are eager to monetize their stakes, while at the same time protecting their legacy with a solid plan for their firm’s stability and continuity.  

“We’d far rather see a great GP with a strong next-generation team continue onward than break apart due to a lack of an ownership transfer mechanism,” Bratkovich says. “GP stakes deals can provide a solution to smoothly manage this kind of natural change.”  

GP stakes can also help managers scale their capital commitments, broaden their investment platform with new strategies, and build out their teams to support growth.  

“If you have a $5 billion fund, and you have a 2% GP commitment, that’s $100 million of cash that needs be put into the deals alongside the LP’s,” Korchinski says. “If you’re talking about a standard 2% sort of GP commitment level, if the management team does not have that type of liquidity, this can be one way to help facilitate that and build a balance sheet to be able to fund those future commitments.” 

Tags: GP, Private Equity