Talk to institutional investors about private markets right now and it quickly comes back to the same point of frustration: cash isn't coming back fast enough.

As exit conditions continue to be challenging and distributions lag, investors are paying much closer attention to DPI, or distributions to paid-in capital. At the same time, although public equity markets are near all-time highs, they are increasingly concentrated in a small number of large technology firms. Investors are therefore turning towards private markets for diversification, but are finding few solutions that deliver early, regular cash flow.

When I founded Dyal Capital Partners in 2010 (which combined with Owl Rock in 2021 to form Blue Owl), we started with one simple idea. The best private markets firms weren't just good at raising and investing one fund. They had the potential to become valuable businesses in their own right. More than 15 years and over 70 partnerships with private capital firms later, that is still how I think about GP Stakes.

We are investing in the institution behind the funds: its people, investment capabilities, relationships, its ability to perform over successive generations - and ultimately its compounding earnings power and resultant cash flows. The magic (and also nuance) of GP Stakes is that it combines attractive characteristics of different asset classes in one strategy.

Unsurprisingly then, the question I get asked most often is: where does GP Stakes fit and what is its value proposition within a portfolio?

Own the firm, not just the fund

When an investor commits to a private equity or infrastructure fund, it participates as a limited partner (LP). Its return is driven primarily by the fund's underlying investments net of management fees and carried interest.

A GP Stakes investor, by contrast, owns a minority stake in the firm itself and shares in its earnings and every way that firm makes money. In effect, you're sitting alongside the partners of the firm rather than across the table from them.

This vantage point changes what drives an investor's ultimate outcome. An LP's return depends largely on the performance of a single fund. A GP Stake draws on a different mix of returns, combining management fee profits based on the capital a manager has raised, carried interest linked to investment performance, and returns on the capital the partners of that firm have invested in its funds alongside their LPs. In addition, an investor has exposure to the growing enterprise value of each underlying manager as they continue to perform and scale. In our research, we've described the potential differences between the net economics of owning the manager and investing in its funds as the "GP alpha".

Importantly, a GP Stake investment can benefit from every fund the manager runs today and those it will raise in future, often spanning several strategies, sectors and geographies given the established, scaled managers we generally target. This has the potential to provide highly diversified exposure across private markets through hundreds of active funds and thousands of underlying portfolio companies in a single GP Stakes fund of 12-15 managers. We intentionally seek to create portfolios that represent a broad cross-section of the industry, rather than reflect a tactical or near-term macro view, as we want these funds to perform across market cycles and with a view towards the long-term.

Cash flow alongside long-term ownership

GP Stakes also have the potential to generate cash distributions earlier in an investment's life. While a primary LP fund commitment typically draws capital early on, with several years before substantial distributions flow, a GP Stake investment reflects a return supported by cash distributions which can commence as early as the first quarter after investment, which can moderate the J-curve impact and support earlier DPI.

Australian investors may recognize something familiar in the earnings stream. Part of the appeal of infrastructure, whether an airport or a toll road, is long-duration income and revenue visibility. Contracted management fees from private markets funds can have similar characteristics. They're typically earned over fund lives of ten years or more, supported by capital commitments from investors including pension funds, sovereign wealth funds and insurers.

The comparison has limits: management companies are operating businesses, not infrastructure assets with guaranteed revenues. Management fees can step down after the investment period, and fee profits remain exposed to the manager's costs, fundraising cadence and business performance. Even so, recurring management fee profits provide a source of cash flow that is less directly dependent on asset sales and provides a ballast source of uncorrelated yield.

GP Stakes investments also benefit from existing, in-the-ground assets that can be underwritten prior to transacting. Established managers may have substantial existing investments and accrued carried interest across legacy funds, which can convert to cash as underlying assets are realized. As the manager raises and invests subsequent funds, that exposure to future carried interest can also be replenished.

Unlike a secondaries portfolio, which winds down as its assets are sold, a GP Stake can keep generating new sources of cash flow for as long as the manager keeps raising capital. The ongoing nature of a GP Stakes portfolio has the potential to create a powerful flywheel of compounding returns as underlying partner managers grow and scale.

We do recognize that strong organic cash flow is not the same as liquidity. GP Stakes are long-dated, illiquid equity investments, and we generally underwrite them as perpetual holdings. Recurring distributions can contribute to substantial cash-based returns that are not reliant on a sale of the stake itself. We've developed a growing GP-led secondaries program to address more programmatic liquidity over time, and we expect this market to continue to evolve and scale alongside the maturation of the secondaries industry.

Why experience matters in a tougher market

None of this assumes an easy investing environment, and it would be naive to pretend otherwise.

Growth in private markets fundraising has moderated in recent years, with slower distribution activity limiting investors' ability to recommit capital. Yet the industry is still growing. Global private market assets under management are estimated at around US$20.3 trillion in [2025] and forecast to reach US$26.7 trillion by 2030. Growth has been uneven, with some fund managers finding it easier to raise capital and others finding it much more difficult.

Capital has favoured established firms. Among the top 50 and top 100 private equity managers in the PEI 300 ranking, excluding publicly listed firms, those with more than 25 years of operating history captured roughly three-quarters of fundraising between 2021 and 2025. Investors are concentrating their commitments, too: funds of US$1 billion or more accounted for 78.2 per cent of capital raised in the first half of 2026, up from 59.1 per cent in 2021. Scale, longstanding relationships and performance through market cycles count for more when capital is harder to raise.

We aim to concentrate our GP Stake investing in this advantaged cohort. Most of our partner firms have long operating histories and substantial scale, averaging around 25 years since inception and AUM of US$50 billion. We believe these larger platforms will benefit from secular growth trends in private markets and are well placed to serve investors continuing to expand their private markets allocations.

The question for investors

So, where do GP Stakes fit?

Equity ownership and potential appreciation in the management business resemble private equity. Recurring fee profits appeal to credit and yield-oriented investors. Early cash flows from existing investments and accrued carry resemble secondaries, while the contracted fee stream has characteristics familiar to infrastructure investors.

There is no single right bucket. We believe the allocation decision should start with an assessment of what drives returns, when the exposure distributes cash, and how it complements the rest of the portfolio.

As listed markets become more concentrated and investors place greater emphasis on distributions, I think more investors will ask not just whether to own private markets, but in what form. I don't expect every fund to rush in, nor should they. But it's a question worth putting on the table: what would a diversified exposure to the managers themselves, with cash flow along the way, add to the portfolio?

For decades, most investors have owned private markets from an LP's perspective. The next decade may see more of them benefiting from the perspective of an owner as well.