A GP Stakes Perspective on the Professionalisation of Private Equity

Overview:
In this high-energy episode, Alex Rawlings is joined by Brad Pilcher, Partner and Co-Founder at Bonaccord Capital Partners, a leading mid-market GP Stakes investor. Brad shares his fascinating journey from aspiring concert pianist to private equity investor, and dives deep into how the private equity world is evolving — particularly around culture, capital, talent, and growth.

They explore how mid-market firms can scale successfully, the five principles guiding Bonaccord’s strategy, and why “professionalization” is now essential across PE — from investor relations and origination to team structuring and multi-product growth.

🔑 Key Topics:

• [00:00] Brad’s background & founding Bonaccord Capital Partners
• [01:54] Lessons from Bridgewater: culture, ambition, client-focus
• [06:34] Brad’s 5 core principles for investing and business success
• [13:05] Why Bonaccord targets the mid-market: stability + growth
• [17:38] Institutional capital shift towards mid-market PE
• [20:29] Mistakes PE firms make: lack of evolution, strategy, or value creation
• [24:17] Fundraising playbook: off-cycle marketing, transparency, and LP engagement
• [31:18] The professionalization of private equity – talent, IR, and origination
• [36:07] State of the GP Stakes market & why liquidity concerns are overblown
• [42:04] Surge in control acquisitions & how it impacts GP Stakes
• [44:50] What Brad reads: quarterly reports, Bridgewater research, biographies & astrophysics

📌 Notable Quotes:

“In business as in life, the only constant is change.”
“Great firms know who they are, and evolve with purpose.”
“People, not spreadsheets, drive performance.”
“The best GP Stake firms bring capital and value creation.”

📚 Resources & Mentions:

• Bonaccord Capital Partners – bonaccordcapital.com
• Brad Pilcher on LinkedIn – Connect Here
• Edgar SEC Filings, Bridgewater macro research, A.V. Loeb’s astrophysics work

Raw Selection partners with Private Equity firms and their portfolio companies to secure exceptional executive talent. We focus on de-risking executive recruitment through meticulous search and selection processes, ensuring top-tier performance and long-term success.

🔗 Connect with Alex Rawlings on LinkedIn: https://www.linkedin.com/in/alexrawlings/
🌐 Visit Raw Selection: www.raw-selection.com

Looking to grow your team? Check out our Hiring Guides

for proven strategies, templates, and best practices to make smarter hires. 

Transcript

00:00
Welcome back to the Royal Selection Private Equity podcast. Joining us today is Brad Pilcher, partner of Bonaccord Capital Partners,  a GP Stakes investor located out of the US  in New York. Today we're going to dive into  private equity, what I refer as the professionalization of private equity,  GP Stakes, what he's seeing.  Let's dive in.  Brad, if you could share a brief insight into you, please.

00:30
Sure. Well, Alex, first of all, very good to meet you and thank you for  having me on the podcast today.  So I'm Brad Pilcher.  I'm one of the partners and co-founders of Bonaccord Capital Partners and we are a mid-market GP steaks firm who acquires non-control equity interests and mid-market private market sponsors. I'll give you a little bit of background on myself  just to provide some color and context to how we ended up where we are. um If I go all the way back in time, I think it took me a long time to figure out what I wanted to do when I grow up.

00:58
I think it's fair to say the 16-year-old Brad didn't know that he had a passion for mid-market GP steaks. But I ended up there eventually through a circuitous path. So long, long ago, I had an aspiration of being a concert pianist, but ultimately nerve damage and tendonitis had different plans for me. And so while I was aspiring that path, I'd spent a few years doing molecular biology research in high school and in college. But I came to the conclusion to a certain point in time that

01:27
My father who was in medicine was the hardest working person I knew and trying to compete with him was probably a fool's errand  and pursued a different path academically. So  I went to Columbia University and I majored in Middle Eastern language and culture. And of course, the natural next step from that major was to go and work at a hedge fund.  So I started my career in the early 2000s at Bridgewater Associates. um And this was really a formative experience for me in kind of defining approach to this strategy.

01:54
At the time I was a very young person, so I was probably too inexperienced to realize this, but I kind of had a front row seat for seeing one of the greatest growth stories in alternatives over the last 30 years. You at the time that I started, think that Bridgewater was in the mid-single digit billion, subsequently, I believe, grew to about 150. And, know, some of the key themes that I believe drove the success of that organization really resonate with what we look for when we invest today. I think it was affirmed that...

02:22
that had an innovative approach to the world, was willing to look at things differently from what kind of market convention said should be done. That was a firm that had a clearly defined culture,  that really defined how exceptional people could come together and achieve something. It was an ambitious firm that was looking to build something great.  And importantly a firm that I think very early in the life cycle of kind of this current phase of institutional growth and alternatives, had a very client-centric mentality,  really focused on how to deliver to large institutional investors what they needed.

02:52
And so, you know, I kind of took the next formative step in my career going to work at Swiss Re the insurance company. That's when I first began working with AJ Chikara, one of my partners who really brought this whole initiative together. You know, at the time, Swiss Re had a substantial kind of, I would say, investment banking type of organization. AJ was a founding member of what was called the Equity and FundLink Group at Swiss Re. Had about a $5 billion capital commitment from the firm.

03:21
pursue an array of strategies that span principal investments, proprietary trading strategies,  certain insurance link strategies, and ultimately a structured funds business  that focused on investing and financing illiquid alternative investments.  And in the spirit of having lost the formative experiences that I didn't fully appreciate at the time,  the thought of having a single investor with a $5 billion commitment was something quite unique. think I spend...

03:47
A good portion of my time today is sitting on planes and sitting in conference rooms kind of rattling the tin can looking for investor commitments. And I will say with full candor, we love all our investors and I actually learn more,  I think from raising money than from even investing in many ways,  given what our strategy is.  I was the first associate on the desk. I was carrying AJ's bags around and fetching him coffee,  but I was very good at fetching coffee. And so 20 years later, we're still working together.

04:15
know, Ajay had previously worked with our other partner Farhad Dehesh in the late 1990s in London at Morgan Stanley. And in 2006, Ajay was to have to go out to London and kind of lead the European Operations for the Equity and Funding Group. I didn't have much else to do. I was a young guy, so I followed him out to Europe. And the first person he recruited to join that group was Farhad. And so the three of us who launched Bonaccord Capital Partners,

04:42
together have been working together in various formations for close to a quarter century now. We launched Bonaccord in 2017 with the mandate to really focus on investing in high growth, mid-market, private markets firms. And it's been a fun ride since then. Well, thank you very much for that insight. Just dive into Bridgewater Associates, obviously a famous firm now. Obviously it was back then, but more so now.

05:09
How you mentioned about the culture of that business and that being different from your perspective, what was it that made that different  that drove the success or contributed to it? Well,  you know, to broaden the aperture even beyond Bridgewater, I think, you know, what was important there and it's important at every firm is that they had a very clearly defined culture. And I would say, you know, culture is like personality. There's not a right one, right? But, but an effective successful firm needs to really know what theirs is. And I would say.

05:36
Setting aside the specifics of any individual organization's culture, think what Bridgewater did well is really define who they were and how people would work together within their organization. I think when we look across the firms that we've invested with at Bonaccord,  I think we see very similar themes.  The firms that are very successful know who they are,  know who they want to be, know how the firms should come together, know how people should collaborate. And I think  that was really a defining attribute of how that firm succeeded and how

06:04
many other firms we've partnered with we've seen succeed as well. So a lot of career into head funds, into GP stakes, investor, the dream of every  six year, 12 year old boy  to get into, same as executive search to be fair. But  what's the kind key learning points? What are things you've taken from the firms you worked in that are the valuable elements that drive your career to today? Yeah, it's a good question. I mean, I'll start kind of high level just about business and maybe life in general.

06:34
I'm 43 years old now, so I haven't been around forever, but I've been around long enough to see a few things over the course of my career. uh I think the first thing I'd say, and this really informs the way that we invest is,  in business as in life, the only constant is change. If you sit still, the world will pass you by. And this is true at the micro level in terms of your relationships, in terms of development of organizations, in terms of developments of companies.

07:01
It's also true at the macro level in terms of how industries play out, technologies play out, the way that politics evolves. ah And so think what I've seen over the course of my career and what I've seen in really successful firms is that you need to operate from a core set of values,  but you need to adapt to the way that the world is changing and ideally be able to anticipate those changing. So that balance of having  the core root values that don't change,  but responsiveness and adaptivity to a changing world I think is core for...

07:29
pretty much every successful firm and professional that I've seen. You know, the next thing I'd say, having had a formative experience in my career of kind of being in financial services and investing off of a financial services institution's balance sheet during the great financial crisis, which is a very fun thing that I hope never to do again, you got to focus on the downside. You know, things can go wrong in ways that you don't expect.

07:53
And I think  anyone who shared that experience of being in financial services during the great financial crisis knows this. um You know, it's interesting today because we're working with a whole generation of young people who  certainly lived through COVID, but COVID from a financial perspective in some ways proved to be a bit of a blip  and haven't experienced kind of a really pervasive uh disruptive experience. so,

08:18
People's degree of imagination in many cases as to what really can go wrong is not as broad as it could be if you lived through something like that. so, you know, it's interesting when we go to underwriting investments, having conversations with some of the really smart, talented young people that we work with, you know, they'll present a financial model forecast and say, you know, this firm says they're going to sell this company for a four and a half times multiple invested capital, but we want it to be really conservative. So we looked at what happens if it comes out at 3.75x.

08:43
To which my response is, that's really interesting. What happens if it comes out at zero?  Because things can go wrong in ways that you don't really anticipate. so, you know, our strategy of GP Stakes investing is very much focused on being able to couple really strong long-term returns, coupling a targeted private credit level of yield on a gross basis and private equity levels of appreciation on a gross basis, but with durable offensive downside characteristics. And so,

09:11
you know, the strategy that we operate in is really focused on that, protect the downside first.  You know, I think if you look at long-term investment track records, the greatest determinant of long-term success is the avoidance of asymmetric losses. So that focus on the downside is really critical. I think the other thing that, uh you know, seen over and over is you need to have intellectual humility.  The reality is you might be wrong.  And even when your perspectives are strongly held and well-informed,

09:41
There are always, uh as Donald Rumsfeld said a long time ago, the unknown unknowns.  There's a lot that we don't know.  And there are other people who might know things that we don't know. And so you need to be open to others' thoughts. It doesn't mean that they're by definition right.  But if you lack an openness to  other perspectives, you're likely to miss out on things that are fundamentally important. So intellectual humility is next. The fourth out of five things I'd highlight  is uh

10:09
business and especially private markets is all about people. I think building a business, whether it's private markets or hedge funds or a widget factory, building the business is all about people, but even the investment process in private markets is all about people.  If you're  doing traditional asset management, long only equities, hedge fund investments, a lot of the interaction is with numbers on a screen over which you don't necessarily have direct influence, not to overly simplify it.

10:39
But in private markets, it's really about partnering with management teams and helping them to achieve long-term objectives.  even though we live in spreadsheets and legal documents on a day-to-day basis, there's a human being on the other side of all of those spreadsheets and documents. And it's people who will make the decisions or do the work that bring these forecasts and agreements to life. And if you have good relationships and if you can work with those people, those people can change outcomes and your relationship with those people

11:09
can change outcomes. So that focus on people first in both building a business but also in executing our investment strategy is critical. um And then the final point I'd make is, you should never exploit a position of power. uh Careers are long and relationships are long and there will be peaks and there will be valleys. There'll be times when you feel like you're in the comparative position of strength. There'll be times when you feel like you're in a comparative position of weakness.

11:37
But trust is built when you do the right thing because it's the right thing, even if you have the option to do something different.  And given the extent to which this is a people business,  building those relationships of trust, we believe, are critical to success. um And the approach you take will tend to be reciprocated. You know, if you lead with trust, if you do the right thing when you have a choice not to do the right thing,  your counterpart on the opposite side will tend to reciprocate that. um If you seek to...

12:05
gain advantage by exploiting a position of power and you have the opportunity to do that and generate mistrust,  the person on the other side of the table will do the same thing when the positions are flipped. And so I think, you know, over the course of  the 20 some odd years that I've been operating, I think those five things,  acknowledging the constant of change, focusing on the downside, maintaining intellectual humility,  focusing on people and ultimately  never exploiting a position of power, I think are some of the most important learnings I've had. And of course,

12:35
As we proceed with the conversation, we can talk to you about how specifically that factors into our business. But I think those principles have been really critical to the way that we've sought to build our firm. Yeah, the latter certainly reminds me of the kind Charlie Munger approach with regards to, you know, everybody gets their, everybody gets their slice and there's no point trying to squeeze it out. It'll only backfire at you from there. So you guys chose the middle market. What was the reasoning behind that? um A lot of reasoning.  And I'd start just from kind of

13:05
fundamental business characteristics. think one of the attractive features of investing in the mid-market, probably in general across private markets and in particular, I believe, within GP Stakes, is you're looking at businesses that have a really unique combination of attributes, which is they've grown and mature to the point where they have achieved stability, but they've not grown so far that they've lost the growth potential. And I think that first point's really important to emphasize in our strategy, again,

13:34
in mid-market GP stakes. We're investing in firms that are smaller than where some of the larger GP stake firms invest. And as I first and foremost, they're great GP stake investors who do large investments and great who do mid-market investments and great who do smaller ones,  a whole bunch of different interesting flavors.  We happen to think ours is the tastiest, but they're all great. um But if you look at where we invest, we're investing below where some of the larger GP stake players invest, but not in small firms, not in concentrated firms, not in...

14:03
risky firms and if you look at some of the attributes across our portfolio, on average the companies we've invested in have about a 20-year operating history, around $5 billion in fee-paying assets,  a little over $100 million  in EBITDA, 70 employees, 2.5 product lines. So these are very mature, uh durable businesses that we've invested with, but they still have most of their growth ahead of them.

14:28
And that's what's exciting, right? To be able to invest going back to a focus on the downside and firms that have that durability, but firms who are still telling their story, who are still building what they're seeking to build. And we can be an active partner in helping them to do that.  So that kind of stage of the life cycle to us is exciting. um And that stage of the life cycle has implications then for transaction dynamics too. um You know, one thing is that what we see in mid-market GP stakes is we feel this is really a true growth equity strategy.

14:57
You know, we're investing in high potential businesses who are still building what they're seeking to build um and need operating capital  and investment capital rather than operating expertise to support them in achieving that.  And what that means, since it is a true growth equity strategy, since the firms are seeking both capital but also partnership, it means that if we can present ourselves as the value-added partner of choice, if we can have the greatest value creation capabilities,

15:25
To support these firms in achieving their long-term objectives, we'll be able to invest in the best firms in our segment of the market. We'll be able to do it without using price as a differentiator. Now, none of this is  looking to say that we want to buy into the best firms in the mid-market and kind of do it for cheap.  We're not trying to bargain hunt for broken businesses that we can fix. That works in many strategies.  Some of the firms that we own a piece of uh do that in their own investment funds.

15:53
But for GP Stakes, we think it's a very different business  where the winners, the most successful firms within private markets are going to achieve the vast majority of the success. So we have to focus on buying into that top tier um and that requires having value creation capabilities. So that true growth equity dynamic we think is really attractive.  The other thing I'd say is  kind of the flip side of that coin is in the mid-market, we have the ability to drive outcomes. um

16:19
If you invest in businesses that are very large, there are attractive elements to that. Obviously, very large firms, they've eliminated some of the downside risk to the long-term story of the business. But in many cases, it's harder to change the trajectory of those firms. It's more like turning an aircraft carrier. And so even though they're great companies, as a value-added partner, it might be more of a challenge to really move the needle on the investment.

16:48
In the mid-market, we believe that's very different. We believe we have the ability to drive outcomes. And where firms are encountering success, we can help them to succeed more.  In the circumstances where firms encounter challenges, we can help them to navigate those challenges. so  again, transaction dynamics in this mid-market is we really have the ability to be a value-added partner and not just be picking stocks, but ultimately helping to build businesses.

17:12
The third broad area aside from business characteristics and transaction dynamics I'd focus on is just market landscape.  We're investing in a big market.  We estimate there are 1,100 investable firms in our segment of the market. uh More importantly, from a TAM perspective, we estimate you could invest about $200 billion of equity  in mid-market GP stakes today, and that's growing quickly.

17:38
You know private markets from the end of 24 to the end of 29 are forecast to grow by about 75 % So if you apply that same rate of growth to our addressable market, that's a further 150 billion dollars in growth between 2024 and 2029 and so Substantially sized market in comparison to the amount of capital is pursuing it and a lot of growth ahead in addition to just more limited competition in the segment of the market where we operate

18:04
You know, we estimate that probably around $40 billion has been raised by funds with a uh total or substantial focus on larger opportunities. In our segment of the market, we estimate it's less than 10.  Those are all the features that are kind of true in general. And there's some factors that are true in particular today. um There is an overwhelming focus among institutional investors on migrating their investment portfolios more toward the mid-market.

18:33
um If you look at the last 20 years, there's been phenomenal growth in private markets assets under management, and the biggest piece of that's been driven by large institutions. And many large institutions naturally and probably intelligently  initially seek to build their private markets portfolios by investing with the largest firms. um If you're doing something you've never done before, doing it with the largest brand name is a very naturally risk-averse and intelligently risk-averse way to get started. But as firms' portfolios have matured,

19:03
And as they've seen, the return opportunity in the very large segment of the market has probably contracted.  The return opportunity in the mid-market has expanded. They're increasingly moving the areas of focus. So to substantiate some of those facts,  if you look at a survey of institutional investor sentiment, four of the top six areas of focus are within our investable universe on kind of lower mid-market to mid-market buyout. um On the flip side, for larger firms, if you remove

19:30
considerations around geographies where some LPs have concern around elements of Asia, two of the four lowest areas of focus are large and mega buyout. And in large part, that's a result of performance. If you look over the last decade, the median mid-market sponsor has outperformed large market by about 2.4 % per annum. And the magnitude of that outperformance increases as you migrate up from

19:56
median to second quartile to top quartile. And if you look at top quartile and mid-market firms, they've outperformed top quartile large cap firms by an average 7.2 % per year. So you compound that for a decade, that's a big difference. Now, none of this means that the large cap segment of the market is going away and increasingly they've had a lot of success migrating their distribution focus to wealth and retail markets, which are really big growth areas we go forward. But the opportunity for mid-market firms to capture a huge portion of institutional capital.

20:26
is substantial.

20:29
Given your GP stake investor lens, what mistakes do you see private equity firms or portfolio companies making and what would you suggest to correct them? Yeah. Well, it kind of goes back to some of the general career learnings we talked about. um I think really the biggest risk  is inability to evolve. If you look at uh private markets 20 years ago, it was a

20:58
smaller market, it was a less competitive market, it was more of a cottage industry.  But because of the size of the opportunity that's there,  because of the magnitude of AUM and  profits and ultimately returns that can be generated, really smart people have spent a lot of time and a lot of focus on figuring out how to differentiate what they do. um And so, you know, there's a risk of firms who historically might have gotten fat and happy in the before times.

21:26
who fail to evolve  will experience challenges.  What are some of those big changes and what are some of those challenges? Some of the areas I think we'll see people fail and are seeing people experience challenges is lack of strategy differentiation.  And one of the big areas to focus on is just really clearly defining your investment strategy. What type of company do you invest in? Where do you invest? And I think

21:54
You know, one of the pitches you might sometimes hear is, you know, I'm a sector specialist who focuses on six different sectors.  You know, I do a little bit of everything. um That worked 20 years ago or maybe even 10 years ago, but today  investors really want to see a clearly defined not just sector or industry, but even oftentimes sub segments within that sector or industry or certain situations within to which you invest or certain attributes of companies within that area. So not only do you need to know where you invest, you need to be able to tell the story.

22:23
of where you invest for investors to be comfortable in trusting their money with you. The next one that's kind of related is a lack of value creation capabilities. There's a substantial period in the history of private markets where you could just make a great return by buying cheap and experiencing kind of industry-wide growth or in many cases firms who were able to just experience the benefit of

22:49
kind of longer term increase in multiples across the market broadly. And so so much of value is driven by multiple expansion. um That story in many ways has probably played out.  And so people are increasingly migrating from how do I make money on multiple expansion to how do I make money by creating value? And in some cases, that's, you know, thoughtful and creative M &A strategies. In many cases, it's the ability to drive organic growth.  And in every instance, that means as a private equity spot. So you need to be able to help firms to achieve that and

23:18
More and more firms have been very creative in defining both a playbook for how they drive value and generating resources internally for how they drive value. so the firms who will succeed will be the ones who have that playbook, who have the resources.  Firms who fail to evolve the way that they drive value in their portfolio, think similarly will encounter challenges. those are the two big areas I think of challenge or potential failure today on the investment side is lack of strategy differentiation.

23:48
lack of value creation capabilities. But of course, the private markets business is about both how you invest, but also how you raise money and engage with the investor community. um Every great private markets firm starts with the basis of great investments, um but you can invest, but not grow if you choose not to. um But you cannot grow without being able to invest, right? And that's increasingly true today with the greater degree of competition with more people pursuing

24:17
uh Fundraising in comparison to the magnitude of capital that's available than likely has been the case for a very long time Even though the magnitude of growth in the industry will be substantial Even though the amount of capital is available to be invested is great The competition for that capital is very high and so investors are increasingly focusing on exceptional returns So you have to start with investment capabilities, but then you go to client facing capabilities so I think one thing that we see is firms who are failing to evolve their fundraising playbook

24:47
If you look from 2005 to 2021, private markets grew from $1.3 trillion to $11.5 trillion. That's 8x growth. That's a tremendous amount of growth. It's a rising tide that lifted maybe not all boats, but lifted many boats. And growth is forecast to remain very strong. mean, industry forecast for growth is around a 12 to 13 % compound annualized growth rate over the next five years.

25:16
It's about 75 % growth in the industry. But the way that growth is going to evolve will be massively different. you if you look at a lot of firms who grew from that period of 2005 to 2021, a huge portion of them were US-based sponsors, and a huge portion of them were raising money in their backyard. That growth from $1.3 trillion to $11.5 trillion, a massive contribution to that, was growth in North American pension plans.

25:43
Groups said at the beginning of that period might have had a 2 % allocation to private markets and subsequently grew into the  20s That was a massive secular shift of capital um You know within a very large investment ecosystem now Those North American pensions will continue to grow But they're more likely to grow at the pace of the market some will increase their allocations to private markets some will decrease Their allocations to private markets, but that's largely a mature market

26:11
And where you see growth coming from now will be different segments, different industries, different geographies. know, insurance has been a huge growth driver, especially in private credit, but even in private markets more broadly. um Non-U.S. geographies have been big growth drivers. I Middle East and Asia have been  massive contributes to growth, not just in general, but in particular within the mid-market, where those are in many cases younger portfolios that are now pursuing that migration into mid-market.

26:39
uh And of course,  the big prize over the course of the next 10 or 15 years,  the next secular mega growth opportunity is the wealth and retail market broadly. And that's a combination of two factors. One is just the increasing sum of capital in the hands of individuals just by virtue of long-term growth and equity value held by individuals. uh And the second piece of that is just increasing penetration  of private markets, not just into the wealth ecosystem, but even into the broader retail private markets ecosystem.

27:08
For the firms who want to grow in the future, they have to learn how to grow not just on the market that they know, which is raising money with kind of large North American institutions, but how to raise money in the markets they don't know. Now, not everybody's going to have to go all the way down the acuity scale to figuring out how to raise money into 401k plans, right, which is kind of the most advanced wealth in retail, which we'll see a lot of the really big firms focusing on, and probably less in the mid-market, and that's over five to 10 years. But figuring out how to evolve is critical.

27:38
And similarly, and this is kind of correlated to that,  is changing your approach to investors. um If you go back in time 20 years, and this is true in many cases in private equity, and many cases even more so in hedge fund space, there was the allure of the unknown. The firm you couldn't get into, they didn't give you a lot of reporting, you didn't really understand what they did,  but everybody wanted what they couldn't have  that other people did. so,  kind of lack of transparency not only didn't

28:07
necessarily harm a brand, in some cases it might have increased the allure of a brand. um That doesn't play anymore. It especially doesn't play as you're trying to grow larger into the institutional segment of the ecosystem. know, look, large institutions are looking to make money, but they're also looking not to lose money. And if they do lose money, they want to be able to explain why they lost money and why other people lost money too.  Because the fear is, A, losing money,

28:35
The really big fear is losing money when other people don't lose money. um so providing that degree of transparency, communication, helping people to understand what you're doing,  that's really critical and that's been a change. uh Another piece is off-cycle marketing. Going back to the before times of private markets being a cottage industry where the availability of capital in comparison to what was being offered was much higher. m You know, the old school playbook of raising money in private markets or private equity was...

29:03
um You know, every three or four years,  you call up your placement agent six months before you need money.  They take you out on the road for a couple months. You raise all the money you need in a single close. You likely are at your hard cap. You're oversubscribed. um And then you go  back to sleep for three years on raising money and you send people quarterly reports.  They're welcome to come visit you in the office if they need to.  But otherwise, you're not paying attention. The market has changed.

29:32
Again, the type of people who are making commitments have changed. The competition for their investment dollars is greater. The institutionalization and pace of their allocation plans has changed. And so you really need to be engaging with investors all the time, not just when you need money. If you just show up with hat in hand when you need money and you give them three, six months to make a decision, um you know, a lot of them are just going to say no.

29:56
But if you're constantly building a relationship, constantly sharing with them your plans, your objectives, how the business is progressing, how their investments are progressing, giving them visibility to when you'll need money, allowing them to build that into their longer term allocation plan, that's a much more successful approach. And then the last piece  is,  especially with large LPs, taking a partnership approach. You know, in many cases we've seen this evolving theme of kind of the blurring of the LPGP boundary.

30:25
Right? Where LPs who moving huge sums of capital, creating a lot of value in businesses, want to be able to retain more of that value. And that might be in being able to be more selective, being able to be more hands-on with investments, uh being able to better define their mandate, or retaining a share of the economics through seed capital partnerships, through GP stake partnerships, um you know, other things like that. And so...

30:49
being a bit more open-minded with very large LPs as to allocating co-investment or forming SMAs or having even product partnerships with some of the largest investors are important. the firms who don't evolve the way that they raise capital, the firms that don't evolve the way that they're partnering with LPs, um those ones will have challenges as well, we believe. Richard, my kind of take on what's happening in private equity at the moment is the professionalization of private equity.

31:18
And I don't mean that as a detriment. know, we see businesses go from low, um, from being founder owned into private equity owned and they have to be professionalized. And what we're seeing is private equity being professionalized because of the level of competition. And because there's, we're now seeing marketing in private equity firms. We're now seeing, um, you know,  business development teams in private equity firms, because everything has just got more complex. We've got investor relations teams. Um, and that's not just been seen at the big large cap type firms. It's been seen in mid cap and now you're, uh

31:47
your low middle market firms are now beginning to bring those types of processes in and even micro-cap businesses and knowing that competition is hard, everyone needs to step up, it's not as easy as you referenced with running around and kind of raising capital, it takes longer, it's harder, everyone's competing for it, there's not enough money to go around all the private equity firms. So there's lots of variances that come with that and  it's been a really interesting transition certainly over the last three to five years of  those private equity firms beginning to think, okay, people are coming for our lunch now.

32:16
We're not the only people in here. It's not as simple as that. I'm competing against five, six, seven other private equity firms just for one portfolio company  and  money cannot be the only way we differentiate. Alex, I don't know if you can see this, but there's a single tier rolling down my cheek right All at a rough time. Absolutely. This is where our two  teenage passions of GP stakes and executive search overlap because that talent strategy is such a huge portion of what we focus on.

32:45
with our partner sponsors um and you hit the nail on the head. Obviously, you know this so well.  You know, we've got now 16 firms that we've invested with and of those 16 firms, six of them today don't have an IR business development person. um I think five of them have one or two  and then I want to do the math right, three of them have three to five and then two of them have kind of big global fundraising capabilities. um I think the least insightful insight

33:13
I've ever had over the course of kind of us developing this business and getting to know this market  is there is probably a misperception I had long ago before we started BonAccord that big firms had large fundraising teams because they were large and they could afford them. um What I realized over time is it's actually completely the opposite. Big firms are able to be big because they've invested in that capability of engaging with the LP ecosystem. And so that's true  fundraising, going back to the comment on value creation as well, same thing.

33:43
Right?  Increasingly,  firms who in the past might have relied on more of kind of an operating partner network approach are now building internal dedicated value creation capabilities. And whether that's on  talent management or revenue model or operating efficiency or any number of other areas, mean, we within our firm have uh a 13 person team all focused on helping our partner sponsors to raise money because from our perspective, that's one of the biggest elements of value creation that we can pursue. And then the other one,

34:12
where we see an arms race for talent and people kind of defining dedicated verticals in the organization uh is origination capabilities, right?  Deal flow is not just gonna come out to you. You're gonna have to go out and find it and everybody invests in different types of companies and what they have to be able to do to identify those companies is going to be different,  but having a well-defined origination capability is critical. And then the other element, Alex, the talent strategy that we spend a lot of time thinking about with our partner sponsors is

34:40
How does your team structure change when you go from single product to multi-product? How do do that in a way where you're making sure that every product that you launch is exceptionally staffed  and a great standalone business, not just under the halo of your broader brand,  but at the same time not being destructive to culture and at the same time creating great economic incentives for everybody in every product line because some might be larger and some might be smaller, but they're all strategic to the success of the firm. um

35:08
You are in a really exciting segment of the market right now, I think, because people are becoming so much more thoughtful about talent and not just, you know, the deal guys or the deal gals, but really the whole ecosystem of talent within a private markets business. And I think that's a big change. Yeah, I think there's, mean, obviously I'd be in full agreement of that, but I think more and more businesses are becoming to realize that people are everything. And especially in a

35:37
private equity, human capital, business in essence is selling services to grow businesses and scale them and take them forward as opposed to what it's previously marked itself as just access to capital.  So what's your take on the GP Stakes industry and what that looks like moving forward? I love it.  I think the industry looks great. um Let me talk a little bit about where we are in GP Stakes and then I'll talk a little bit about where we're going.

36:07
some of the key themes that will drive that. um You know, the first thing to state, and I think, you know, I assume this would be evident to people, but most people have probably more fun things to do with their free time than study the GP Stakes market.  The good news for all of you people is I don't have better things to do with my time, so I have. um GP Stakes has been a really strong growth segment. um You know,

36:30
Private markets have been a strong growth theory over the last period of time. GP Stakes has grown more quickly over a one, three, five, 10-year time horizon.  If you look over those 10 years, it's almost double the rate of growth in GP Stakes versus private markets. It's hard to analyze numbers of perfection, but that's our estimate.  And this is leading to a lot of evolutions in the market. It's GP Stakes investors with more focused investment strategies, more defined.

36:58
whether it be large, medium, small, whether it be certain geographies versus other geographies, as with the maturation of any firm, um people's investment focus is becoming more targeted. um And so we see that in terms of the types of companies that they invest in. um So as an example, you  have within GP Stakes, obviously an ecosystem of people focused on larger firms. We and a number of our peers are focused on mid-market. You had seed capital businesses.

37:25
which are kind of the smaller cap version of GP Stakes, a slightly  different business, but it's one where you're providing LP capital to help firms to get going early on return for an economic interest in the GP. But it's also across forms of financing, right?  You know, we within GP Stakes provide permanent equity capital. You have  a number of smart firms who are providing more preferred types of financing.  You have some groups who've been doing more pure debt financing, and so...

37:54
the ecosystem around the different ways that private market sponsors can source, um in every case, financing, and in certain cases also operating support  has really become much more diverse, and we think that's a healthy thing. um You know, we're also seeing in some circumstances very large institutions now defining GP stakes as a part of their asset allocation. um I don't think that will become a global theme.

38:21
But the pools of capital who have done this are ones that are quite substantial in scale. And so that just means we see more in different forms of capital coming into the market and that helps on the entry and it helps on the exit. You know, one of the big questions that people always ask in many cases, the first question that people ask when we talk about GP stakes is liquidity.  There is a perception, I believe a very substantial misperception that GP stakes is a uniquely illiquid asset class.

38:51
um And there are good reasons that people think that even if I believe it's misinformed. um Number one is they haven't seen that many precedents. um There are a few reasons for that.  Number one is GP Stakes is a pretty young market. um know, GP Stake funds go back to, I guess the first one is in 2007.  But the first GP Stake fund focused on private market sponsors, which is where we invest, was launched in 2015.

39:20
And so the oldest portfolio of purely private market GP stakes managed by a fund manager is just a decade old and GP stake investments are often focused on holding investments for up to a decade. And so it's a young market and it's a small market. mean, 1,100 investable firms in our segment of the market, but this is not, know, US lower middle market companies generally, which is far larger than that. And so the number of GP stake portfolio investments is

39:48
you know, not that substantial historically. With that being said, the historic hit rate for liquidity in GP stakes has been very substantial and we believe it will get much more substantial. um So actually, since 2010,  there have been 23 single investment liquidity events in GP stakes.  These are, this is by our estimate,  among programmatic GP stake investors, not idiosyncratic or one-off. um

40:15
These are people buying a stake in a single company and monetizing that stake in a single company. Of those 23 events, 22 have happened since 2020. ah And in fact, I believe that 14 of those 23 events have happened in the last two years. So the velocity of single investment realizations has increased substantially, and we think that that velocity will remain  quite substantial. um But that's not the only way that people are generating liquidity in GP stakes.

40:43
People are also generating liquidity and portfolio transactions. It's kind of a unique feature of this strategy because all of the types of companies that we invest in are quite related. Going back to generalist investors, we don't own companies that do technology and industrials and healthcare and  energy and pick your other sectors. um Everything we do is within financial services, within financial services, it's all private markets, within private markets, it's all minority stakes and GP stakes, but you get great

41:11
diversification across strategies, sectors, geographies, management teams, vintages, etc. Which means there's become a great ecosystem of packaging together GP stake investments and monetizing those together.  In fact, there have been nine historic portfolio monetizations of GP stakes. Seven of those have been since 2020 and four of them have been the last two years. And if you look at it terms of number of dollars that have achieved portfolio monetizations, that's  even greater in terms of proportions than happening in the recent past.

41:41
The strategy is becoming proven in terms of the ability to generate liquidity. um If you just spend time listening to nerds like Gus at BonAccord who are going to be dissecting those numbers on your behalf. um One of the really interesting themes that is informing private markets ecosystem broadly and GP stakes in particular is the increasing prevalence of control acquisitions of private markets businesses.

42:04
You know, if you went back in time 10 years, most of what you would have seen is maybe insurance companies or traditional asset managers buying private credit firms.  But it's broadened out beyond that and we're seeing the broad themes are private credit, PE secondaries, infrastructure, but increasingly we're seeing the broader ecosystem inclusive of real estate strategies, inclusive of even direct private equity strategies undergoing control acquisitions. And I think going back to some of those macro themes of

42:33
the greater complexity of fundraising, greater resource intensivity of some of the fundraising ecosystems where the growth will be, I think that theme will continue, it will persist. If you look at deal flow in terms of control acquisitions of private markets businesses, going back in time before 2021, we saw maybe 10 to 12 per year, maybe a little bit less.

42:58
In 21, 22, and 23, we saw between 25 and 30 control acquisitions per year. Last year was 56. And this year, as of Q3, it was already 30. And so those numbers of acquisitions are substantial. If you look in terms of the number of dollars of AUM, from 2021 to 2023, on average between $350 and $450 billion of AUM was required per year. Last year, that was $700.

43:26
and it's on a substantial pace this year as well. But what's interesting, and people don't often appreciate because you see headlines about, you know,  HPS and other really large firms getting acquired and control deals, you think it's all a feature of the really high end of the market. But the reality is the median AUM of a control acquisition target of private markets is under $10 billion, substantially under $10 billion. And so, you know, that theme is going to continue and that's been fostering some of the liquidity in the space.

43:54
It's also going to drive some of the opportunities that exist in this space. Every independent mid-market private market sponsor is probably asking themselves in a quiet moment, what does it mean to be an independent mid-market firm? And is that a long-term viable strategy?  And the answer absolutely can be yes, but you need access to resources. And that could be either through building them organically internally, through selling to a control acquirer, or through partnering with a GP steak firm who would have to bring those resources to you.

44:22
And so this will drive deployment opportunity for us on the front end. It will also drive realization opportunities for us on the back end where firms ultimately decide to sell control. Interesting. I hope to your passion for your industry.  I love the executive search and you certainly love GP Stakes. So you're the right person to be representing  the GP Stakes industry on a podcast. What do you read? What do you listen to? What do you recommend that others check out, please? Yeah. So... uh

44:50
Part of the answer to this question is a little bit boring. I read a lot of quarterly reports. was joking. I was joking with my daughter last night. She's 12 years old and it was about 10, 10. And I'm like, kiddo, you're supposed to be upstairs in bed by 10. I hope I don't sound like a bad parent. Some people might think that should be nine or something, but we do our best in the Pilcher household. And I'm like, I gotta go upstairs. She's like,

45:19
I have to read a bunch of quarterly reports. I'm like, have six reports to read. Just like, dad, that sounds so boring. So can I tell you something really sad? I'm a little bit weird. It's not boring. I'm actually excited about it.  That's my happy place, right? Reading numbers  puts my mind at peace. um But outside of that, you know, the other thing I'd say, and this is also boring, but uh man, if anybody doesn't spend their time in Edgar, uh you really need to.

45:46
because the magnitude of information that is out there for people to receive through reading public company filings is extraordinary and most people don't bother to actually see everything that's out there on the businesses that they're interested in. So  that's the way that I spend my weekends. My weeknights are reading quarterly reports and that's the weekends.  But even going away from kind of, you know, directly business related or GP stakes related, you know, maybe it's because it's the part of place where I started my career, but  I love whenever Bridgewater publicly publishes their macro research reading it. I think

46:16
our business is so micro, being able to really step away and read macro research  and understanding what's happening more broadly in markets and industries and countries, um thinking about things more fundamental like interest rates or currency or other items like that. I think it's great to  evaluate the opposite of what you spend your time on every day. So that's really interesting. In terms of reading  for myself, although my hands broke to the extent where I couldn't be a professional pianist, I do like,

46:46
playing piano, is reading a lot of music.  So Chopin, Rachmaninoff, Scriabin, these are some of the places I like to spend a lot of my time.  In terms of books,  you know, this is boring, but I read almost exclusively biographies, whether it's business people, musicians, athletes,  anybody who's achieved something great. I think it's remarkable what you can learn  in seeing how other people build things and seeing how other people achieve things and overcome challenges.

47:14
You know, when I step outside of  my comfort zone, uh you know, when I'm  sitting in bed on a Friday night getting ready to fall asleep,  I love to read about aviation and space. ah know, Neil deGrasse Tyson has a great, uh you know, kind of podcast he does on YouTube. ah You know, just to get a little bit far afield. I've loved reading about this uh 3I Atlas,  the interstellar object flying through  our solar system and all the interesting theories people have.

47:44
You know, there's one particular, I don't know if he's an astrophysicist or astronomer, but A.V. Loeb, who's gotten a lot of negative press because he's been talking about, you know, is this an alien spaceship? It's probably not. But the reason I actually love reading what he has to say is going back to the theme of being willing to look at things differently. I think if you actually listen to the guy and don't just read the headlines, he's not saying he believes it is. He's saying we should be open to the possibility that it could be.

48:11
And I think that mentality of having the humility to say, okay, this is the prevailing perspective on things and you're not allowed to look at it differently. But just out of intellectual humility, let's consider that we might be wrong. I think that that approach in every industry or element of academics or anywhere else, you know, having the humility to step back and say, all right, this is what we believe is true, but let's consider what else could be true. Doesn't mean that we believe it is, but we should at least consider that it might be.

48:40
I find that to be fascinating. agree with you, certainly on that one. If anybody wishes to reach out to you, post this podcast. Brad, how best do they get in touch, Oh, geez. Well, you can always reach out to me on LinkedIn. We do have an info at BonAccord Capital on our website to be able to contact us. you know, my email is just my name, bradford.pilscher at bonaccordcapital.com. And so you can always feel free to reach out directly.

49:05
We love talking with sponsors, we love talking with investors, or just people who love GP Stakes. So, yeah, never hesitate to reach out. Perfect. Well, thank you very much for coming on to the Private Equity Podcast, bringing all your energy around GP Stakes and the insights around Private Equity performance. Thank you very much. I really appreciate your time. Thank you very much for everybody tuning in and listening to the Private Equity Podcast. Till the next time, keep smashing it, and thank you very much for listening.