Core Insights - Tax Receivable Agreements (TRAs) represent a unique asset class that combines features of debt and equity, providing holders with a stream of payments typically over 15 years, and have historically yielded around 20% per annum, nearly double that of comparable direct lending [1][2][33] Group 1: Understanding TRAs - TRAs are contracts between public companies and pre-IPO shareholders of partnerships, requiring the public company to pay a portion of specific tax savings to these shareholders over a set period [3][4] - The Up-C structure allows companies to maintain tax efficiency while going public, utilizing inefficiencies in the tax code to generate tax savings that are shared with LLC founders [7][10] - As of early 2025, approximately 150 publicly listed companies in the US had outstanding TRAs, with more than half established since 2020, indicating a growing trend in their use [22][58] Group 2: Market Dynamics and Investment Opportunities - The secondary market for TRAs has expanded, with around 8% of recent IPOs involving TRAs, up from less than 1% in 2005, suggesting increasing recognition and potential for investment [33][35] - TRAs currently have a combined value of approximately USD 30 billion, making them significant enough for specialized buyers to consider purchasing from existing owners [35] - Investors in TRAs can achieve returns of 18-22% per annum, which are generally uncorrelated with broader market movements, presenting a compelling opportunity for yield-seeking investors [36][37] Group 3: Legal and Structural Considerations - The complexity of TRAs and their structures can lead to legal challenges, particularly regarding the voting control of pre-IPO investors and potential conflicts of interest [45][46] - Recent cases highlight the scrutiny surrounding TRAs, with courts increasingly examining the fairness of transactions involving TRA terminations and payments [49][50] - Companies are increasingly opting to simplify their structures by terminating TRAs, which can enhance investability and create flexibility for future growth opportunities [42][48] Group 4: Future Outlook - The number of public companies utilizing TRAs is expected to grow, particularly as private equity and venture capital firms look to take their portfolio companies public [58][62] - As TRAs gain visibility, they may become a more mainstream investment class, similar to other asset classes like music and pharmaceutical royalties [62][63] - Investors are advised to monitor companies undergoing changes to their TRA structures, as these may present short- or long-term benefits [43]