Proxy for Permanence: Unique Challenges of Creating Private Fund PCVs and Potential Solutions (Part Three of Three)

Permanent capital vehicles (PCVs) are not easy to form. Some of the challenges involve working through exit options and manager compensation, and others relate to difficulty with finding investors willing to lock up capital for longer than a typical PE fund. From management teams hoping to form the next Berkshire Hathaway to family offices contemplating long-term co‑investment arrangements, sponsors and investors should weigh the issues – and solutions – before forming a private fund PCV. This third article in a three-part series identifies certain challenges that are unique to the PCV experience, along with suggesting solutions sponsors can employ for overcoming them. The first article provided an overview of how the term PCV is defined and used in the private fund context; why that approach has become more appealing in recent years; and what benefits PCVs offer GPs and LPs. The second article described common terms and features of private fund PCVs, as well as some of the most common PCV structures used in the PE space. See our two-part series: “Evolving PE Fund Management Techniques and Considerations During a Financial Crisis” (May 19, 2020); and “Impact of Economic Uncertainty on PE Fundraising and Fund Formation Efforts” (May 26, 2020).

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