What Is a Permanent Capital Vehicle (PCV) ?
Permanent capital is an investment for an indefinite period of time in an underlying vehicle. The vehicle can be any form – a corporation, trust or partnership. The investment entity could be publicly traded or privately held.
Example Of Permanent Capital As an Investment Vehicle
The most recognized, and perhaps most successful, example of a permanent capital investment vehicle may be Berkshire Hathaway. In simple terms, Warren Buffett created a pool of investments where new capital could be added, capital could be withdrawn, management is incentivized and the investments within the pool could change. Family offices have been doing this for years. This is why REICG quotes Warren Buffett in our video, “My favorite holding period is forever.”so it is safe to say short term is not the objective. For 50 years, Warren Buffett has been able to reinvest profits from his businesses and the premiums from his insurance operations without investors pressuring him to return cash to them. The result is that Berkshire Hathaway is one of the largest companies on the U.S. stock market.
Permanent Capital Private Equity
For private-equity investors looking for private equity funds, permanent capital is an open ended investment in a company, akin to buying shares of a company on the NY stock exchange without determining in advance when you are going to sell. This is very different from the way private-equity currently invests in U.S. commercial real estate. Typically, private-equity invests in a private real estate investment fund for a specific period, usually five to seven years, with annual profit distributions, and then the real estate is sold and the cash proceeds are delivered back to the investors. The fund manager/sponsor then has to start all over again for the next deal.
PCVs are also known as “Evergreen” structures, sometimes called “Evergreen Funds” where evergreen is defined as “always reliable”. There was an article written in 2015 that referred to Permanent Capital Vehicles as “Long Term Cash Machines”.