[Edaily Marketin YunJi Kim Reporter] In the global private equity (PE) market, GP solution funds (investment funds that provide capital contributions or growth capital to meet the funding needs of the asset management firm itself) are gaining traction. This trend comes as delays in the sale of portfolio companies have slowed the pace at which general partners (GPs) can recoup cash, while the financial burden of raising capital for new funds and business expansion persists. With a series of funds being established to meet this demand, the total size of related funds raised by major asset managers this year alone has exceeded $15 billion.

Delayed Exits and Capital Raising Burdens Drive Increased Liquidity Demand Among GPs

According to industry sources on the 6th, global alternative investment manager Ares Management recently raised $4.2 billion (approximately 5.63 trillion won) for its first GP Solution strategy. The flagship fund of this strategy is the “Ares Global Structured Solutions Fund,” which was initially targeted to raise around $1 billion.

Unlike typical buyout funds that directly acquire companies, this fund aims to provide capital to private equity firms themselves. It does so by supplementing the capital contributions that firms must bear when launching new funds or by providing the initial capital needed to launch new investment strategies. It also targets funding needs arising from management transitions or the succession of ownership stakes within firms. In essence, it treats the financial needs of the firms themselves—rather than those of the companies they invest in—as investment opportunities.

The growing attention to this strategy stems from recent changes in the private equity market environment. Due to sluggish mergers and acquisitions (M&A) and initial public offering (IPO) markets, the sale of portfolio companies has been delayed, causing a general slowdown in the pace at which firms can recoup cash from existing investments. As the recovery of investment capital is delayed, the timing of cash flows—such as performance fees—that general partners (GPs) can receive is inevitably pushed back as well.

In fact, according to McKinsey, the average holding period for portfolio companies held by private equity (PE) firms has now exceeded six and a half years. Over the past year, the ratio of distributions returned to investors relative to total PE assets under management stood at 6 percent—significantly lower than the 16 percent average recorded between 2015 and 2019. This suggests that investment exits and distributions are not proceeding as smoothly as in previous years.

The problem is that even as investment recoveries are delayed, GPs continue to face new capital requirements. To raise a new fund or expand their assets under management, GPs must contribute a certain amount of capital themselves. The structure is such that while cash inflows from existing investments have slowed, they must once again inject their own capital when launching a new fund. In addition, separate capital needs arise when launching new investment strategies or transferring ownership of the firm to the next generation.

Consequently, as the pace of cash recovery from existing investments slows while the amount of new capital required increases, GPs’ liquidity pressures are mounting. The recent rapid growth in GP solution funds is interpreted as a move aimed at addressing these capital needs at the asset management firm level.

GP Solution Funds

on the Rise

… Over 20 Trillion Won Raised This Year Alone

As funding needs at the asset management firm level grow, the formation of large-scale funds targeting these strategies is also on the rise. The total size of related funds raised by major global private equity firms from the beginning of this year to the present amounts to $15.45 billion (approximately 20.757 trillion won).

Notably, Actos—a KKR-affiliated firm that has focused on investing in stakes in professional sports teams—raised the “Actos Keystone Partners Fund” to $6.2 billion in July. This fund, which provides growth capital and financing to alternative investment managers, significantly exceeded its initial target of $4 billion.

Hunter Point Capital, a U.S.-based firm that provides equity investments and financing solutions to alternative investment managers, also established a $4.3 billion GP financing solutions platform in June, consisting of loans based on net asset value (NAV) and other instruments. This indicates that substantial capital has been raised through strategies that either provide funding directly to the managers themselves or offer financing backed by fund assets.

Dawson Partners, a Canadian alternative investment manager, also raised a $750 million (approximately 1.0073 trillion won) GP finance fund in March. Dawson, a firm specializing in secondary and structured liquidity solutions, currently manages over $30 billion in assets. Since entering the GP solutions market in 2019, the firm has executed 32 transactions totaling over $8.5 billion for 19 GPs.

Market observers note that this trend is not only addressing the funding needs of some GPs but is also broadening the very nature of how liquidity is supplied to the private equity market. Whereas in the past the focus was on securing liquidity by selling LP fund stakes or leveraging the assets of portfolio companies, there is now a growing trend toward including the asset managers’ own capital contributions, growth capital, and even funding needs arising from succession planning as investment targets.

Commenting on this, a source in the global capital markets stated, “The scope of liquidity provision is expanding due to issues such as delayed exits,” adding, “The secondary market, which previously focused on securing liquidity from LP stakes or portfolio assets, is now expanding to encompass GPs’ capital contributions, growth capital, and even funding needs at the firm level.”