Preface

For our next interview, we wanted to hear from the advisory side of GP Stakes—specifically counsel. Below we will hear from Joe Schwartz, an Investment Funds and Private Equity partner at Sidley Austin LLP. Sidley is an active law firm in the GP Stakes space with a global reach and deep expertise across GP Stakes market segments and asset classes. Joe has been immersed in the GP Stakes industry for over 10 years, dating back to his young associate days at Sidley.

With that, I’m pleased to share my recent conversation with Joe Schwartz, Partner at Sidley Austin LLP.

What We Already Know

• Sidley’s GP Stakes practice sits at the intersection of its Investment Funds and Private Equity capabilities

• Sidley is one of the few active law firms in the GP Stakes arena

• Has been actively growing its GP Stakes practice with multiple partner hires over past 6-12 months

Digging Deeper

One Stake, Two Stake, Maybe More?

We are seeing more and more GPs come back to market to sell a second or even third stake. Careful negotiations on the initial stake can pave the way for subsequent bites at the apple. For example, buyers typically demand “tag-along” provisions, which give them the right to sell their stake on a pro rata basis alongside the principals. GPs will sometimes try to tailor these “tag-along” provisions in a manner that would prevent the first buyer from participating in a second stake sale, thereby allowing for a more seamless second stake sale process. Another big ticket item is the ROFO (or right of first offer). If an initial stakeholder has such a right, that could disrupt a process. If a GP is hopeful up front to sell multiple stakes, properly structuring a ROFO or even negotiating it away altogether will come in handy down the road.

The “Next Gen”

A middle market player doing a stake deal often finds itself at an inflection point; indeed the stake deal itself may very well be part of a broader “institutionalization” plan for the GP. Certain buyside market participants are really focused on seeing a succession framework get woven into the GP’s fabric in conjunction with closing the deal. Succession planning typically raises complicated economic and governance matters and, of course, is a sensitive topic for many founders (and the next generation). So, these matters naturally tend to be some of the most sensitive in the negotiations.

Recent Negotiation Focal Points

It shouldn’t be a surprise that the consolidation trend among private markets fund sponsors is influencing GP stake deal negotiations. While many buyers will welcome a carefully timed and successful liquidity event, they also want to ensure that they are maximally aligned with the GP’s principals if they are to be taken out via a “drag-along” or similar mechanism. Treatment of “house” vs. “team” carry and what that means for the exiting stakeholder is always a fun one. Separately, should a buyer insist on minimum hold periods and/or minimum return thresholds? These are just two examples of a number of interesting issues that come up, all of which are garnering more focus given the uptick in control M&A deals in the asset management space.

LPs Getting in the Game?

While the vast majority of deals are being done by GP stake firms, we are seeing more and more LPs looking to buy direct stakes in some of their relationship GPs. Sovereign wealth funds and insurance companies in particular tend to hang around the hoop, though they usually have more of a strategic thesis in partnering with a specific GP. Some heavyweight LPs are now introducing GP stake ROFR or similar provisions in their side letters when they initially invest in an emerging manager’s fund. While a stake sale down the road likely is not top of mind for an emerging manager, you also don’t want to wake up six or seven years later and realize you gave away the house.

Beyond the Office

We always enjoy learning what members of the GP Stakes community are passionate about outside of work. For Joe, spending time with his wife and four kids is top of the list, which includes sports card collecting with his son and “video bombing” his daughters’ reality TV videos. Tennis is his lifeblood outside of the office and his main form of exercise, so that’s a priority for Joe particularly in the spring and summer months.

➡️ Interested in creating content with GP Stakes News? Just reach out!

© 2025 GP Stakes News. All rights reserved.
This article and its contents are the intellectual property of GP Stakes News. No part may be reproduced, distributed, or transmitted in any form or by any means without prior written permission. For licensing inquiries, contact [email protected] and visit GPStakesNews.com