On the day of Steve Job’s passing in 2011, an individual share of Apple—the company he founded, got expelled from, and returned to save—cost $377. Market watchers, noting how powerful a hold Jobs had over the company, fretted that the stock would sink. It did the opposite: Taking into account a seven-for-one stock split in June of 2014, an individual share of Apple is now equal to $700, a 73% appreciation. In retrospect, the only reasonable decision upon hearing of Jobs’ death was to buy, buy, buy.
“This is just like buying Apple when Jobs… retired,” one executive recently told me when I asked about his business: Buying general partner stakes in hedge funds, often because founders wanted out. “It has ridiculously high margins, and it’s a narrow market segment—which means less competition, which is good for our investors.”
Three players dominate the space: Neuberger Berman’s Dyal Capital, Blackstone, and Goldman Sachs Asset Management. Their business models are all similar: Buy minority stakes in hedge funds (“a 10% to 20% stake is the sweet spot,” the executive told me) and access the lucrative fee stream that comes with it. Different than a fund-of-funds (“God no, we are not a fund-of-funds”) in that it is a portfolio of these asset streams and not directly returns, they often aim for hedge funds with $2 billion to $8 billion in assets—also “the sweet spot,” according to industry observers.
“This is just like buying Apple when Jobs… retired. It has ridiculously high margins, and it’s a narrow market segment—which means less competition, which is good for our investors.”
An obvious question arises: If a hedge fund founder is retiring, why should you be buying in? “You’re betting on a team,” the executive responded. “We wouldn’t be buying if we thought all the talent was walking out the door when we put our money in. We are betting on the team, and we don’t interfere. If they need our help, we aren’t partnering with the right people.”
Something must be working, as all three players are raising more capital at the moment. However, keep in this mind: During Jobs’ 1997 to 2011 tenure, the stock appreciated more than 9,000%. So it would have been much better to buy Apple while he was at the helm.