Permanent Equity

searcher profile

May 26, 2021

by a searcher from The University of Texas at Austin - Red McCombs School of Business in Houston, TX, USA

Is anyone in here involved with or ever considered starting a permanent equity fund? If so, would love to connect to hear about your experience or get your opinion on such a fund structure.

Thank you.

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commentor profile
Reply by a searcher
from The University of Texas at Austin in Houston, TX, USA
Luke,

Very similar. The only difference between the two, in my mind, is that a permanent equity fund plans to invest/own multiple businesses indefinitely. The intention would be to have an acting CEO (other than yourself) at each portfolio company (this could come at a later date after you have run a newly acquired business for a few years). With multiple businesses, one could in theory mitigate risk while also building cumulative FCF across a portfolio of companies.

In other words, a permanent equity fund is a private equity fund that holds its investments indefinitely. Given the smaller size of the targeted companies, the partner(s) would more than likely not be able to rely on the owner to continue running the company like many private equity firms do. Thus, the partner(s) would likely have to run a newly acquired business similar to a search funder until the business is streamlined and you have found a general manager or acting CEO.

You could go either way in regard to tapping outside capital or maintaining just your own (or possibly including a partner's) capital within the fund. Would be curious to get others thoughts on this aspect as well.
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Reply by an investor
from WU Vienna University of Economics and Business in Vienna, Austria
Hi Dylan, if you are looking into this, you will need to knock on a lot of doors to find the right partners who are willing and able to invest in permanent funds. It just doesn't fit with market standard, so in most cases it only works for investors who are the actual stakeholders themselves, and not managers of other people's money. I'd look at teaming up with family offices and ideally people who are familiar with the model. Brent Beshore had a specific podcast episode shortly after they raised a big round of $150m or so, where he went into the details of their fund raising process and how difficult it was in many cases, in spite of their incredible success and track record.
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