GP Playbook in partnership with
Keys for Next Generation Managers
In 2022, the U.S. private equity industry and its companies generated $1.7 trillion of GDP. Today, diverse people account for roughly 30 percent, or $5 trillion, of purchasing power in the U.S. The alternatives industry has growing influence in an economy that is increasingly more diverse.
Diverse ecosystems, however, remain significantly undercapitalized. The Knight Foundation estimates that women and diverse-led firms represent less than 2% of the alternative asset management industry’s AUM. The lack of diverse representation across the value chain of capital allocation represents a challenge but also a compelling investing opportunity for GPs and LPs alike.
We launched TPG NEXT to address this market inefficiency. We wanted to use our platform, capital, 30-plus year history, and business-building expertise to seed and support the next generation of alternative asset managers. By putting capital in the hands of diverse principal talent, we see an opportunity to not only align our industry with broader demographic trends but also deliver better performance. We believe there is a ripple effect to this work that will benefit underserved communities and ecosystems.
Launching a fund isn’t easy. It’s even harder when you don’t have access to the circles, networks, and pathways that have traditionally defined success in the alternatives space. We designed this open-source playbook to demystify GP formation, providing investor entrepreneurs with a behind-the-curtain look into the strategies and tactics that go into launching a business. Scroll down for centralized expertise, best practices, and actionable insights.
Managerial Best Practices
Define your Strategy
When you can define A and B, they combine to deliver C: your differentiator. Launching a fund begins with a clear articulation of your strategy – know your capabilities and mandate, and develop a concise and compelling message for what makes you unique.
Investors will seek to test your differentiation to assess what will ultimately sustain your competitive advantage. They will also compare your strategy to their existing manager relationships to gauge how complementary and/or additive your fund is to their other investments.
What is your background? What are your capabilities?
Where are you seeing opportunities? What is your investment strategy?
What is the market opportunity and why are you well positioned to capture it?
Operational Best Practices
Build your Firm
Sector-Based Domain Expertise
What are the key differentiators of your knowledge and understanding of the industry in which you invest?
- Develop top-down, thematic sourcing
- Insights from operational experience
- Access derived from executive network
Post-Investment Value Creation
What are you doing to enhance the value of the business you acquire?
- Implementation of cost controls
- Augmentation of sales and marketing
- Upgrades in management and board talent
- Identification of acquisition candidates and other growth levers
How are you setting up your GP?
- Timeline of infrastructure set up should align with fundraising plans, target size, etc.
- Evaluate the trade-offs of outsourcing versus building dedicated capabilities
- Consider legal firm selection, support construction, fees, and ancillary services
- Milestone considerations for hiring in-house counsel
How are you set up to assess impact?
- Instill measurement and monitoring practices
- Consider when to hire dedicated resources and job descriptions thereof
How are you set up to raise capital?
- Fundraising: Timeline for when to hire a placement agent, when to build internal IR talent
- Marketing: Consider what constitutes high-quality offering materials
How are you set up to streamline and automate systems?
- CRM utilization can be critical for sourcing and vetting deal flow
- Consider and prioritize vendors for capital formation, accounting, reporting, and other core firm functions
How are you set up to build your brand?
- What is your story – how and where are you communicating it?
- Website and social media
- Events, including remote and in-person connectivity
Customize Your Partnerships
Historically, managers relied on primary or direct LP commitments to raise their funds. As the alternatives industry has grown, new strategies and tools have emerged. Today, GPs and LPs have multiple avenues for accessing and investing capital.
Primary or Anchor Commitments
LP invests directly in your fund
LP invests in specific asset alongside you; success can help lead to fund commitments and longer-term partnerships
Liquidity tool that involves purchase of existing asset or interest
GP Stakes / Seeding
Partnering with a third party that takes a minority ownership stake in your GP
More than half of large private equity firms have engaged in GP stakes, with third party ownership outpacing the rate at which new firms are launching. In addition to capital, these partnerships – often referred to as seeding in the case of new managers – provide emerging GPs access to their Partner’s brand, network, relationships, and expertise. Conversely, it’s an opportunity for a Partner to invest in innovative investor entrepreneurs and shape their stories from the beginning. Seeding partnerships have become even more attractive amid a challenging fundraising environment.
In exploring a seeding partnership, some key considerations include:
- Working capital needs to support…
- GP commitment, including long-term planning for multiple funds and broad ownership across the partnership
- Operating expenses, including but not limited to hiring plans, office space, technological enablement, and other expenses
- Strategy expansion plan
- Succession planning efforts
The building blocks of seeding or staking a manager include:
- Entitlements: gross or net of operations, inclusive of management fee and/or carried interest
- Discounts on fund commitments
- Duration and terms of equity investment
- Restrictive covenants
- Long-term partnership planning
- Liquidity rights and other investor protections
Case Studies 01/01
- Founded in 2015 by Jarrid Tingle and Henri Pierre-Jacques
- Venture capital firm on a mission to change the face of entrepreneurship by investing in 1,000 diverse founders over the next 20 years
- Closed Fund I in 2019 at $40M and Fund II in 2021 at $134M
“Communities of color are massive exporters of cultural and economic value, thus the more of us we have on the investor side of the table, the more we can proactively ensure more women and founders of color build equity in the same ecosystem we’re helping to build.”
Harlem Capital Investment Philosophy
- Founded in 2016 by Marcos Gonzalez
- Venture capital fund focused on Latinx and diverse founders leading early-stage companies in the health and wellness, future of work, fintech, and sustainability spaces
- Closed Fund I in 2021 at $50M
“Only ~2% of VC dollars invested go to Latinx founders, but we believe in the increasing entrepreneurial and economic power of the Latinx community.”
VamosVentures, Our Beliefs
National Association of Investment Companies (NAIC)
- Founded 50+ years ago and today is known as the largest network of diverse-owned alternative asset managers
- Focused on increasing the flow of capital to high-performing diverse investment managers through education, advocacy, and networking
- Partner of TPG since 2021
Aggregate AUM of members
To learn more about TPG NEXT, including submitting your fund for consideration, please email email@example.com.
The information found on this website should not be construed as an offer to sell, or a solicitation to buy, any security or instrument in, or to participate in any investment strategy with any funds, vehicles or accounts sponsored or managed by TPG NEXT or any of its affiliates (“TPG”) or any portfolio company in which TPG has invested. In addition, other third parties that have relationships with, or knowledge of, such portfolio companies may not necessarily share the same views, beliefs, or opinions about the portfolio companies as those expressed in these videos and case studies. No representation or warranty, express or implied, is made as to the accuracy or completeness of the information contained herein, and nothing shall be relied upon as a promise or representation as to the future performance of any investment.