Permanent Capital Vehicle (PCV)

What Is a Permanent Capital Vehicle?

A permanent capital vehicle (PCV) is an investment entity created for managing permanent capital, or capital available for an unlimited time horizon. An endowment, for instance, would typically have an unlimited time horizon.

Understanding Permanent Capital Vehicles (PCV)

A permanent capital vehicle (PCV) is generally utilized in the service of capital growth at the ideal rate long-term, and so is less concerned with the short-term performance of a financial product. PCVs are known as evergreen structures, where evergreen is defined as “always reliable.”

PCVs can come in the form of partnerships, trusts, or corporations, which have expectations of liabilities extending out for many years into the future. PCVs can be publicly listed or privately held. Permanent capital structures include master limited partnerships, limited partnerships traded publicly on an exchange; real estate investment trusts (REITs), companies that own, finance or operate income-producing real estate and are modeled after mutual funds; yield cos, companies structured so that operating assets produce steady cash flow through long term contracts; closed-end funds, a kind of mutual fund; interval funds, a kind of closed-end fund that doesn’t trade on the secondary market; public asset management companies; and variable funds like annuities and life insurance.

Permanent Capital

The concept of permanent capital investments is a relatively new one and is often said to be inspired by Berkshire Hathaway, Warren Buffett’s enormously successful, long-running investment vehicle.

In 2015, the Financial Times said that private equity and hedge fund managers consider permanent capital to be the “holy grail” of alternative investments and consider permanent capital vehicles to offer a solution for the “long-running frustration of alternative asset managers: the stock market’s refusal to value their businesses as highly as traditional fund management companies.” The article explains that, in the past, public market investors have balked at the volatility of alternative asset managers’ fee income, which is subject to investors redeeming their money and relies on performance fees that can be highly variable.

Real-World Examples of Permanent Capital Vehicles

Ellington Financial is an example of a permanent capital vehicle. The company specializes in mortgage-backed securities and owns a portion of a mortgage lender.

Fortress Investment Group, a global investment firm headquartered in New York, manages three permanent capital vehicles: New Residential Investment Corp., Fortress Transportation & Infrastructure, and Eurocastle Investment Limited.

Other permanent capital specialists include General Atlantic, a private equity firm that, as of July 2021, had over $65 billion in assets under management. General Atlantic focuses on long-lifecycle strategies, which include permanent capital funds.