Andre Bourbonnais is the global head of Blackrock’s new long-term capital fund. In this podcast, he discusses the advantages of a permanent capital (i.e. an open ended or no fixed redemption period) approach to managing companies privately. The approach is also used by Warren Buffet. He argues that it allows a longer-term view on acquisitions. It also focuses less on leverage and cost cutting for quick profit gains, tactics that tend to be favoured by traditional private equity funds. Bourbonnais usually targets founder or family run companies that may favour the long-term relationship over company valuations alone. He also has adopted a fixed fee investment model rather than a percentage of asset size fee structure more commonly used in private equity. This aligns with the interests of investors in the fund and the fund managers.
Why does this matter? The short term nature and use of leverage has always been a concern in private equity. Now with the rise permanent capital funds, we could be seeing an alternative model emerge. The question is whether it will scale or remain a niche product.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)
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