Middle Market GP Stakes: Alt's Overlooked Gold Mine

In Brief:

Todd Owens, co-founder of Cantilever Group and 30-year finance veteran, discusses the evolution of GP Stakes investing in alternative asset management during a live podcast with Alt Goes Mainstream host Michael Sidgmore. His firm focuses on middle-market asset managers ($50-500M enterprise value), where he sees significant growth opportunities despite industry consolidation. Owens explains how the GP Stakes market has transformed from nonexistent 20 years ago to a legitimate investment category, with particular potential in the underserved middle market where firms benefit from both strategic guidance and capital infusion.

Big Picture Drivers:

• Evolution: GP Stakes investing has grown from nonexistent in early 2000s to a recognized asset class

• Institutional Adoption: Public markets now understand alternative asset managers as viable businesses

• Market Bifurcation: Clear division between large-scale and middle-market opportunities

• Distribution Changes: Wealth channel democratization creating growth for differentiated strategies

Key Topics Covered:

• Market Development: How GP Stakes emerged as a legitimate investment category

• Middle Market Focus: Why smaller firms ($50-500M) represent compelling opportunities

• Liquidity Solutions: Current challenges in creating exits for GP Stakes investments

• Industry Consolidation: Whether consolidation will reduce total number of managers

Key Insights:

• Democratization Effect: Retail/wealth access to alternatives will drive creation of more specialized firms

• Value Beyond Capital: Middle-market firms often need strategic guidance along with investment

• Hybrid Investment: GP Stakes combines elements of private credit (yield) and private equity (growth)

• Exit Strategies: Industry still seeking better solutions for GP Stakes liquidity

By The Numbers:

• $50-500M: Enterprise value range of Cantilever's target investment companies

• $10B: Approximate capital raised for middle-market GP Stakes investing

• $12-13B: Projected middle-market GP Stakes capital in three years

• 60-70B: Estimated overall size of the GP Stakes asset class

Memorable Quotes:

• "If you like private credit, we're private credit. We just have growth. But if you like private equity, we're private equity. We just have yield." - Todd Owens

• "I think over the next three to five years, I will bet that in five years, there will be more alternative asset management firms than there are today by number." - Todd Owens

• "When I met my partner David and he described what he was doing, it immediately resonated because I'd run processes where we couldn't find a minority equity investor." - Todd Owens

• "We stratify the GP States market as Dial, everybody else in the middle market... then the market where we're focusing, which is smaller firms." - Todd Owens

The Wrap: 

Despite predictions of massive consolidation in alternative asset management, Owens sees continued expansion of the manager universe before any contraction occurs. Middle-market GP Stakes investing represents a unique opportunity to participate in this growth through investments that offer both yield and appreciation potential, particularly as wealth channels seek more differentiated alternative strategies.