Permanent Capital Vehicle
A permanent capital vehicle, also known as PCV, is a type of investment where capital available or permanent capital is managed for an unlimited period of time. Unlike a limited-life private investment fund, which takes a term of 10 years before the liquidation, PCVs can go past 15 years with some periodic extensions. It also provides several arrangements to make liquidity available for investors.
Understanding Permanent Capital Vehicles (PCV)
A permanent capital vehicle utilization usually takes place in capital growth’s service at a long-term ideal rate. It, therefore, does not focus on the short term rate of a financial product. The phrase “evergreen structures” is used to describe PCVs, which means that it is always reliable.
PCVs exist in the form of trusts, partnerships, or corporations with liabilities’ expectations that has extended out for many years into the future. There are two ways of holding PCVs; privately or publicly.
Permanent Capital Investments
Permanent capital investments are somehow considered new and are said to have been inspired by Warren Buffett’s and Berkshire Hathaway’s enormously successful, long-term investment vehicle.
In 2015, Financial Times pointed out that hedge fund and private equity managers consider permanent vehicles to be a solution for the alternative asset managers’ long-running frustration; a refusal by the stock market to value their businesses as a highly traditional fund management companies.
According to the article, public market investors, have in the past, balked at the volatility of the fee income of the alternative asset managers. It is an action that forces investors to redeem their cash and rely on performance fees that are sometimes highly variable.
Permanent Capital Structures Examples
- Real estate investment trusts
- Master limited partnerships
- Companies that operate, own or finance income-producing real estate and are modeled after mutual funds
- Limited partnerships traded publicly on an exchange
- Yield cos (companies structured in a way that their operating assets product’ long term contracts produce steady cash flow)
- Public assets management companies
- Interval fund ( a type of closed-end fund not trading on the secondary market)
- Variable funds such as life insurance and annuities.
- Closed-end funds (a mutual fund type)