GP Profile: Armen eyes “new frontier” for GP stakes in Europe

The firm is in discussions with around 40-45 GPs across the private debt, real estate, infrastructure and private equity spaces, including buyout, growth, secondaries and primary funds-of-funds, Gaillard said. The firm would also consider investing in impact investors, he said, but emphasises that the firm would need to partner with GPs with strong AUM growth ambitions.

“My analysis of the market has been borne out by the last six months of dealflow that we have seen,” Gaillard told Unquote. “Historically, GPs were made up of a group of people who were raising funds on a single strategy and aiming to double their AUM with each vintage. They are evolving progressively to become multi-strategy platforms, so as not to be outpaced by the very large platforms. Having multiple strategies to propose also means that you will see your LPs more often, not just every four years when you are raising your new vintage.”

Current valuations also make now a good time for Armen to invest, he added, given that the status of listed comparables will affect what Armen pays.

Armen has set a target of EUR 400m for its debut GP stakes fund, which is currently on the road and is expected to hold a first close in mid-March.

“Our LPs are mostly from family offices as institutional investors will take longer to decide on whether they will commit, especially in the current environment,” Gaillard said. “But overall, we’re seeing LPs becoming more open to GP stakes and more comfortable with the alignment of interests.”

Gaillard built the thesis for the strategy over the course of his career in the private equity industry, encompassing 24 years at Ardian (formerly Axa Private Equity) and a three-year period as president of French PE industry body France Invest (2018-2021), which has 400 members. Before joining Armen, he spent a stint as a member of the executive committee with Capza.

Armen’s strategy offers a sourcing opportunity for the family offices that have chosen to back it, Gaillard said. “Family offices tend to only commit to domestic GPs where they are based,” he said. “We will speak to our LPs every six months and let them know where we are seeing opportunities and have done due diligence already. Using Armen as an observation tower, we can facilitate their access to new GPs they have probably never heard of, all over Europe.”

Multi-strategy development
Armen’s fund will take minority stakes in 12-15 European GPs over a four-to-five-year period. This composition is expected to build a diversified portfolio, Gaillard said. Given that each GP in which it invests is likely to manage two or more strategies across multiple vintages, the fund could have exposure to 400-500 underlying companies, he said.

Armen usually gets inbound approaches in one of three scenarios, Gaillard said. “In some cases, it’s related to cash: to seed or acquire a new strategy; to increase GP commitments in the GP’s funds; or for some founders from the 1980s and 1990s to cash out, with the next step being investing in and onboarding the new generation.” he said.

The background of Armen’s team can also lead to opportunities, with GPs seeking to benefit from its experience in implementing multi-strategy approaches at their previous firms. In addition to Gaillard, team members include Armen CEO and ex-Capzanine managing partner Laurent Benard, and COO and deputy CEO Renaud Tourmente (formerly of Axa Investment Managers and Capza). Most recently, MidEuropa Partners co-founder Thierry Baudon and Latchpoint Capital’s Catherine Haumesser joined the team.

The team’s network is key, Gaillard said, noting that its members cover the UK, Germany and Switzerland and have often done deals with its potential investee GPs in their previous careers. Armen has a 13-strong team, which will grow to 16 in the short term and 20 by the end of 2023, he added.

“In other cases, GPs are looking to benefit from expanding their own LP base through our investor relations capabilities,” he said. “We can also mix our equity proposals with NAV financing from the likes of AlpInvest or 17Capital, presenting GPs with a global offer.”

Part of Armen’s offer will also include assisting GPs with ESG development, Gaillard said. “Armen is purpose-driven company and one of our aims in partnering with managers will be to improve the ESG ecosystem,” he said. “We will look at improving indexes on gender parity, on sharing value with employees and reductions in carbon emissions in the GPs portfolio companies.”

Across the pond
Gaillard is well aware of the advancement of the GP stakes ecosystem in the US, with players such as Blue Owl and Investcorp already active there. “The development of the GP stakes ecosystem is a long-term phenomenon in Europe and we will see a large amount of deployment in the next five years,” he said. “Smaller GPs are thinking hard about this, considering both the benefits and the drawbacks, now that they know that PAI, CVC and Bridgepoint have done it, to name a few.”

Blue Owl recently confirmed that it holds stakes in PAI and CVC in its newest USD 12.9bn flagship funds, as reported. According to media reports, listed UK-based GP stakes investor Petershill Partners has also made headway in the European market with a minority stake in Permira.

The market opportunity is backed by evidence from the private equity ecosystem in the US, he said. “Our research shows that 40% of US GPs managing more than USD 20bn have opened up their equity to a GP stake investor, versus 10.2% of those in the USD 1.5bn-10bn category, and just 1% for the smallest managers,” he said. “This shows how much scope there is for our strategy to grow. We are at a new frontier for GP stakes in Europe.”

Armen is seeking to take advantage of this with a strategy that can target the smaller end of the market. “The large US GP stakers, such as Dyal, Petershill and Blackstone, can typically only do deals with GPs with AUM of more than EUR 15bn, because of the large size of their recent funds,” he said. “Our sweet spot will be GPs with EUR 1bn-EUR 4bn of AUM, which will make up 80% of our portfolio. Some mid-size US GP stakers do have London teams, but they don’t have our European presence, so there is not a lot of competition yet in Europe.”

During its investment period, Armen's fund will benefit from yearly yield visibility through dividends derived from its GPs’ management fees, Gaillard said. Given the attractiveness of this yield, Armen expects to make exits to larger or US-based GP stakes investors looking to expand to Europe, as well as to family offices or other institutional investors, he noted.

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