Momentum gathers for long-life vehicles

More than a quarter of private equity professionals believe long-life funds will grow in popularity over the next five years, according to Intertrust’s Private Equity Market 2017 report.

“A maturing industry is resulting in more experimentation with fund structures,” the report noted.

“The long-life fund is under less pressure to deploy capital and can hold portfolio companies for a lot longer. Short-term funds are popular among new managers attracting LPs who are cautious of locking up their capital for a decade or more in an untested strategy.”

Respondents to the survey – a mix of LPs and GPs – cited the potential to generate greater returns through longer holding periods as the main driver of the anticipated growth in long-life funds, which it defined as those with a term of between 15 and 20 years. This was followed by the ability to invest in sectors delivering longer-term investment horizons and greater liability matching.

Texas-headquartered tech specialist Vista Private Equity is among the latest to take note of this trend; it hired corporate law veteran Burke Norton as co-head of “perennial investing” in November, as it seeks to develop its capability to focus on longer-term horizon opportunities.

LP demand for long-life vehicles has already been proven. Boston-headquartered Cove Hill Partners raised more than $1 billion for its debut fund this year, which has a 15-year life and will focus on long-term investment opportunities.

Last year, Carlyle and CVC Capital Partners secured $4.4 billion and $3.6 billion for the strategy respectively, while Blackstone has also accrued $4.8 billion for its Core Equity Partners fund, which is reported to have a 20-year lifespan.

While family offices and foundations account for a large proportion of long-term fund capital, pension plans could play a significant role in the success of any future fundraises. A survey from Amundi Asset Management and Create found that of 131 European pensions, 46 percent believe lower portfolio turnover in alternative assets delivers better returns, although this applied to multiple asset classes, such as hedge funds and real estate.