Introduction
Most of what a stake in a private markets manager is worth is settled before anyone chooses a multiple, at the point where each dollar of the firm's income is sorted into a category. A management fee that a fund must pay for years, a carried interest payment that depends on exits still to come, and a return on the firm's own fund commitments can all land in the same year's profit, yet a buyer prices them as three different assets. Listed managers make the sorting visible. Blackstone's annual report on Form 10-K for 2025 shows about $5.7 billion of fee-related earnings and about $7.1 billion of distributable earnings, a gap driven mainly by realized carry and investment income that the recurring measure leaves out. A private general partner (GP) selling a minority stake has no such template, so its private capital advisory (PCA) team builds one. The buyer's price then follows from which bucket each dollar lands in and which ownership rights come with the stake.
Fee-Related Earnings and Why Buyers Pay Most for Them
The starting point is the profit a manager earns from fees it has already contracted for, before any investment is sold. Blackstone defines fee-related earnings as management and advisory fees, net of fee reductions and offsets, plus fee-related performance revenues, less the compensation tied to those revenues and other operating expenses: profit that recurs without waiting for a realization event.
- Fee-Related Earnings (FRE)
The profit an alternative asset manager earns from recurring fee revenue, mainly management fees net of offsets, after deducting the compensation and operating costs needed to earn it. It excludes carried interest and investment gains that depend on exits, and each listed manager publishes its own exact definition.
For a private firm, the hard part is the cost line. Founders of a partnership often draw modest salaries and take the rest of their pay as profit distributions, so their reported costs understate what it would cost to employ people to do their jobs. A buyer therefore restates FRE with a market compensation charge for every role the owners perform. A firm that presents $70 million of FRE can become a $60 million firm once that adjustment is made, and the buyer's multiple applies to the lower figure.
Why Contractual Fees Earn the Highest Multiple
Fee income sits at the top of the value stack because the contract behind it is long and hard to unwind. A closed-end fund's limited partners commit for a decade and cannot redeem, and the fee is usually charged on commitments through the investment period, so a fund that closes this year fixes a large part of the manager's revenue for several years. Blackstone's filing also notes that management fees, once received, are not subject to clawback, which is not true of carry.
Permanent capital strengthens the case further, because a vehicle with no end date never enters the fee runoff that a closed-end fund does. Blue Owl reported in its 2025 annual report that about 85% of its management fees came from permanent capital vehicles, the kind of mix that lets a manager's fee line be valued more like an annuity than a series of fundraises.
What Moves the FRE Multiple
A multiple is shorthand for two judgments, how risky the fee stream is and how fast it will grow, as the perpetuity relationship shows, where is the discount rate the buyer applies to FRE and its long-run growth:
A real reference point shows the size of . Petershill Partners, the Goldman Sachs-operated holder of stakes in private markets firms, disclosed in its results for 2024 that the weighted average discount rate it used for private markets fee-related earnings fell to 11.9%, from 13.0% a year earlier. At roughly 12% with growth near 6%, the formula gives a multiple in the mid-teens. Every driver of an FRE multiple works through one of those two letters:
- Fundraising momentum: successor funds larger than their predecessors lift , and a stalled flagship fund lowers it.
- Fee durability: the remaining life of each fund, the step-down after its investment period, and the share of fees charged on commitments rather than invested capital decide how quickly today's fees run off.
- Permanent versus closed-end capital: fees without an end date reduce because no future fundraise is needed to keep them.
- Margin: a high FRE margin supports value only if it survives market-rate pay, which is why the compensation restatement comes first.
That restatement matters when a seller points to listed peers. The way public alternative managers report fees, margins, and FRE is explained in the financial institutions group (FIG) guide's article on asset management financial metrics, and a private firm's FRE only borrows a listed multiple once both numbers measure the same thing.
Carried Interest: Why Accrued Carry Is Worth Less Than It Reads
Carried interest is the GP's share of fund profits under each fund's distribution waterfall, and the way the hurdle and catch-up decide when it is paid is set out in the fees, carry, and waterfall article. For valuation the key distinction is timing. Realized carry is cash the GP has received from exits. Accrued carry is what the GP would receive if every remaining investment were sold at its current mark, and it can shrink before it is ever paid.
- Accrued Carried Interest
The carried interest a general partner would be entitled to if a fund's remaining investments were sold at their current reported values and the proceeds distributed through the waterfall. It is an estimate, not cash: it rises and falls with portfolio marks and remains subject to hurdles and clawback until realized.
Blackstone reports the figure, net of related compensation, as net accrued performance revenues: about $6.7 billion at the end of 2025, up from $6.3 billion a year earlier, stated before any clawback amounts. The breakdown by fund shows how quickly accruals move. The figure for its global Blackstone Real Estate Partners funds fell from $892 million to $530 million during 2025, while its private equity funds' figure rose. None of the accrued amount counts in FRE or distributable earnings until it is realized.
Four Reasons a Buyer Discounts Carry
Petershill's 2024 discount rate for private markets performance fee-related earnings was 24.1%, roughly double the rate it applied to fee earnings. The gap reflects four risks that fee income does not carry:
- Timing: carry arrives only when investments are sold, which in a buyout fund is typically several years after the capital went in.
- Hurdles: a fund below its preferred return pays no carry at all, and inside the catch-up each change in value moves carry disproportionately.
- Clawback: carry paid early can be owed back if later deals disappoint.
- Exit dependence: accrued carry assumes exits at current marks, in markets the GP does not control.
Clawback matters more than it first appears, because the obligation can reach the firm itself.
Haircutting Accrued Carry: Probability, Then Time
A buyer converts an accrued figure into a present value in two steps. First it estimates a conversion rate, the share of the accrual that will actually be paid, then it applies time value to that amount for the years before the cash arrives. The two adjustments answer different questions: the first asks whether the marks will hold, the second how long the buyer waits.
Accrued carry is a one-time amount while FRE recurs, so the two are not like for like, but the scale of the gap is the point: one bucket is priced at many times its annual amount, the other well under face value.
Existing-Fund Carry Versus Future-Fund Carry
The two kinds of carry raise different questions. Existing-fund carry comes from portfolios the buyer can diligence, but the partners who made those investments regard it as earned, and much of it is already allocated to them through the carry pool. A stake sale may therefore exclude it or price it separately.
Future-fund carry has no portfolio behind it yet. It depends on the manager raising successor funds and on those funds performing, so a buyer can value it as a multiple of the realized carry the firm could earn in a normal year, at a much lower multiple than FRE. At a discount rate in the mid-twenties and modest growth, the same perpetuity arithmetic gives something near 5x. The fund documents can also cap how much carry leaves the founders' hands: the Institutional Limited Partners Association (ILPA) model limited partnership agreement treats the named key persons falling below a bracketed 75% of the carried interest as a change of control, which is why the share of future carry on offer is negotiated against each fund's terms.
Balance-Sheet Investments: Near NAV, With Adjustments
The third stream is the firm's own money. Managers typically invest a GP commitment in each fund alongside their limited partners, and many hold seed investments, co-investments, and cash. These are valued far more simply than fees or carry, because each already has a mark: the capital account value the fund reports. Petershill's 2024 accounts state that certain of its investments were valued at the most recent net asset value (NAV) per unit or capital account information available.
Near NAV is not the same as at NAV, and the buyer's adjustments usually run in one direction:
- Stale reference date: the latest NAV may be a quarter or more old, and markets may have moved since.
- Secondary-market pricing: the firm could only turn a fund interest into cash by selling it, usually below NAV.
- Unfunded commitments: future capital calls on the GP commitment are an obligation, and a buyer sharing in balance-sheet returns will ask who funds them.
- Borrowing against the balance sheet: if the GP commitment was financed with a loan to the manager, the debt comes off the asset.
The secondary discount varies by strategy and fund age, as the article on pricing LP interests explains, and manager-level loans are placed among the other products in the fund finance map. One more check prevents double counting: accrued carry is often recorded as an investment alongside the firm's own capital, and Blackstone reconciles its accrued performance revenues to the investments line of its balance sheet, so the carry valued above should not be counted again here. After these adjustments, an illustrative valuation might carry clean, recent fund interests at around 90% of NAV.
Putting the Streams Together: A Sum-of-the-Parts View
The three streams differ in risk, timing, and legal claim, so pricing them with a single multiple of total earnings goes wrong in both directions: it overpays in a year of heavy exits and underpays in a quiet one. The standard answer is a sum-of-the-parts view, the same logic used for conglomerates in this sum-of-the-parts valuation guide, applied to income streams rather than business units.
The table below applies the treatments above to an illustrative mid-sized manager, valuing 100% of the firm. The multiples and rates are illustrative, not market quotes.
| Stream | Illustrative input | Illustrative treatment | Value, whole firm |
|---|---|---|---|
| Fee-related earnings | $60m a year, after market pay | 16x | $960m |
| Existing-fund carry | $40m accrued to the firm | 75% converts, three years at 20% | $17m |
| Future-fund carry | $25m a year once future funds mature | 5x | $125m |
| Balance-sheet investments | $120m reported NAV | About 90% of NAV | $108m |
| Total | $1,210m |
Fee earnings account for almost 80% of the value. The accrued carry, $40 million on paper, contributes $17 million. A 20% stake entitled to every stream would be worth about $242 million before any adjustment for rights; a 20% stake limited to FRE and future-fund carry, the scope when partners keep what they have already earned, would be worth about $217 million.
Distributable Earnings Versus FRE at Listed Managers
Public alternative managers publish both measures, and the gap between them is the realized part of the other two streams.
- Distributable Earnings (DE)
A non-GAAP measure reported by listed alternative asset managers of the earnings available for distribution to shareholders. It generally adds realized carried interest and realized investment income, net of related compensation, to fee-related earnings, then adjusts for items such as interest and current taxes; unrealized gains are excluded.
At Blackstone, distributable earnings equal FRE plus net realizations, which are realized performance revenues and principal investment income less related compensation, adjusted for net interest and taxes. That is how $5.7 billion of FRE became $7.1 billion of distributable earnings in 2025. Public investors typically value the FRE portion at a higher multiple than the realization-driven remainder, the pattern discussed in the FIG guide's article on valuing asset managers. For a private stake the same split decides the buyer's cash yield: a fee-only stake tracks FRE, while one that shares in carry and balance-sheet gains tracks something closer to distributable earnings, with its lumpiness.
How Rights and Governance Change What a Stake Is Worth
Identical cash flows can support different prices depending on the governance terms: what the buyer is allowed to know, block, and demand. The list of protective rights typically sold is covered in GP stakes explained, which also works through a revenue-share versus equity example; here the question is how each right moves value.
The Minority Discount and the Passive Seat
A GP stake buyer holds a non-control position. It cannot set pay, choose which funds to launch, time a sale of the firm, or replace the founders, and it has no market on which to sell. Those limits are the minority discount and the illiquidity discount that apply to any private holding, explained in the valuation guide's article on illiquidity, control, and marketability discounts. In a GP stake they show up less as a percentage deducted at the end than as a higher required return. Petershill's chairman put the typical implied blended cost of capital on new deals at roughly 15% to 20% in the same 2024 results, above the discount rate the vehicle applied to fee earnings alone.
Rights That Carry Value
The rights package narrows the range of outcomes the buyer must price, and each right does so against a particular risk, from dilution to a sale of the firm without the buyer.
| Right | Risk it addresses | Where it shows up in value |
|---|---|---|
| Information rights | Blind spots in fund-level fees, costs, and carry | Narrower range, lower required return |
| Consent over new equity or economic grants | Dilution of the stake's share of each stream | Protects the numerator of every line |
| Consent over a sale, with tag-along | Founders selling control without the buyer | Preserves an exit and a share of any premium |
| Defined carry scope | Disputes over which funds' carry is shared | Sets the carry lines in the table |
Information rights are easy to underrate: a buyer receiving FRE and carry by fund each quarter sees problems forming, while one limited to annual accounts prices in more uncertainty from the start.
Key-Person Risk and Succession
Private managers often depend on a few people, and fund documents turn that dependence into a contractual trigger. Under ILPA's model agreement, a key person event suspends the fund's commitment period until a majority in interest of the limited partners approves a remediation plan, and ends it if no plan is approved within a bracketed 90 days. The same model moves the management fee from commitments to invested capital while the suspension lasts. A key-person event therefore hits FRE directly and can delay the next fundraise, the two variables at the center of the fee multiple.
Buyers price this through succession evidence: the founders' ages and share of carry, whether the next generation already leads deals and investor relationships, and whether younger partners own a real stake. A credible plan lowers the required return; a firm whose record sits with one founder takes a wider discount, however strong its FRE.
Revenue Share Versus Equity Share
The final lever is the basis of the buyer's percentage. A revenue share is paid from fees before the firm's costs, so the buyer carries no margin risk and its income behaves like a royalty on the fee line, which justifies a lower discount rate. An equity-style share of FRE bears every change in costs, rising with operating leverage and falling when the firm invests in new teams. Buyers accept a smaller percentage for a revenue share, and founders who plan to grow their cost base give up more cash over time than the headline percentage suggests.
The same manager can therefore be worth two different amounts to two owners. A shareholder in a listed firm such as Blackstone holds a traded claim on reported FRE and realizations, with a market price every day and limited say in governance. A GP stake buyer holds a negotiated claim on selected streams, with rights written into a shareholder agreement and no market at all. When an advisor presents a GP valuation, the number means little until it says which streams, on what basis, and with which rights: the scope of the stake is part of the price.
