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The pros & cons of long-dated funds

While the average shelf life of a PE fund is often assumed to be eight to 10 years, many funds require considerably more time to wind down. However, long-dated funds come with both pros and cons.

Private equity moves at a glacial pace. While the average shelf life of a PE fund is often assumed to be eight to 10 years, many funds require considerably more time to wind down. Per PitchBook’s recent analyst note, global data shows that it takes between 11 to 14 years for a PE fund to reach an RVPI of less than 0.05x. Another slice of data to consider: About 53% of 2004-vintage buyout funds remain active to this day. (For perspective, “Friends” was still on the air and Lance Armstrong was still winning Tours de France in 2004.)


So-called “long-dated funds” are starting to proliferate, with clear intentions of lasting 15 years or longer. Over the past two years, more established buyout shops like The Carlyle Group, Blackstone and Apollo Global Management have gravitated toward this strategy for a number of reasons. However, there are both pros and cons to be considered.

Pros of long-dated funds

  • Fewer taxable events, which allow funds to defer capital gains taxes and reinvest those gains in new or existing portfolio companies, thereby boosting long-term capital appreciation.
  • Lower transaction costs, including legal, advisory and accounting costs each time a company is bought and sold, which would happen less often in a long-dated scheme.
  • Operational improvements, which have become more important as the traditional strategies of paying down debt and relying on multiple expansion have become less effective. Long-dated funds will fit well with PE’s current focus on the buy-and-build model, which GPs are increasingly relying on to produce immediate top-line proliferation in a pricey, low-growth environment.
  • Reinvestment risk, which for LPs will translate into fewer due diligence efforts with less turnover between funds.
  • Fees, which will likely be lower than traditional funds and represent a more passive version of PE, not unlike the public markets’ shift to index investing.

Cons of long-dated funds

  • Liquidity, which will take more time to achieve and likely require GPs to promise higher returns (i.e., an added liquidity premium).
  • Value-add, which is a bigger question mark for long-dated funds due to those liquidity concerns. It isn’t obvious how much value can be added to investments once they hit the decade mark. Meaningful value-add could require targeting companies with much more fundamental issues to sort out, a risk in itself for the LPs who finance them.
  • Key man risk, which only increases in probability for 15-20 year funds. A 20-year fund life could span half of a career—and what about younger professionals who change jobs at faster rates?

Some firms are a perfect match

It isn’t surprising to see long-dated funds originating in larger, more established shops. Firms like Blackstone and Carlyle are much more process-driven and less reliant on a handful of stars for their returns. As such, the long-dated trend is likely to be driven by bigger firms and LPs with the longest horizons (such as endowments, sovereign wealth offices and family offices). We don’t expect the tendency to lean toward long-dated funds to expand significantly beyond those categories, but the industry has surprised us before.

This column originally appeared in The Lead Left.

Read more about long-dated funds in our recent analyst note.

Learn more about our editorial standards.

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    About Alex Lykken
    Alex Lykken is a senior analyst at PitchBook, covering custom research projects and white papers across the PE, VC and M&A markets. He worked on PitchBook’s editorial team from 2012 to 2015 and re-joined in 2017 after a two-year stint at Goldman Sachs. He attended Central Washington University and studied history and political science.

    Outside of work, he spends his time fishing, golfing, writing, losing at fantasy football, and trying to keep up with his two-year-old lab.
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