A few years ago, private equity managers were growing tired of sitting on the sidelines, watching Warren Buffett’s Berkshire Hathaway make landmark investments in Kraft Heinz and BNSF Railway. They wanted to get in the game.
To play, they would need to give themselves lots of time—decades, in fact—and as near-to-permanent capital as they could muster. Ambitious buyout firms bet that by raising long-duration funds, they would finally have the patient capital to do those eye-watering megadeals they’d been coveting.
So a few of the biggest names in the industry, Carlyle Group, Blackstone Group, and KKR, set about building their long-duration private equity businesses, hiring teams and raising multibillion-dollar funds (or forming long-life partnerships) to buy companies that are projected to perform well over a longer time frame than the short hold period of a standard buyout fund.
“Having a longer duration—let’s say a 10-year investment hold—is a much more natural investment horizon to have” in some cases, says Carlyle Global Partners LP co-head Tyler Zachem. “It could be we’re partnering with a family, and they want to have a longer-duration hold partner and limited exit rights. It could be that management has an investment plan that they want to see executed over a longer period of time.”
The big private equity firms aren’t the only ones looking for a way to get into Buffett’s buy-and-hold model of investing. The ever-more sprawling network of global investors who are scrambling for a way to deploy billions upon billions of dollars in the private equity market are also searching for a toehold.
Buffett, however, is no ordinary investor. And only a few managers have found themselves equipped well enough to even attempt to play in his league. The less willing have kept to their traditional three- to five-year hold period for buyout funds, which continue to outperform other asset classes.
The success of those challenging the norm in private equity may help stir the industry into potentially accepting a new long-term model. But even those who are using the strategy acknowledge investors and managers will take some time to warm to the idea.
“It’s a big ask to go to LPs to lock up their money for 10 years, let alone something well beyond that,” Zachem says. “This is not an asset class where you are going to have the same number of GPs getting funded. You have to be incredibly thoughtful about what firms and institutions you have confidence in, given the time frame.”
In 2016, Carlyle raised $3.6 billion for its long-dated Carlyle Global Partners fund, which could have a life span of 20 years. Zachem joined the firm in 2015 to co-head the business with Carlyle veteran Eliot Merrill. The pair see long-duration funds as a natural extension of larger firms’ current platforms, which are becoming increasingly diverse.
Carlyle has so far struck six deals for the long-duration fund, including its $723 million acquisition of ice producer and distributor Arctic Glacier Group Holdings Inc. in March 2017 and a minority investment in German clinic chain Schoen Klinik SE in June 2016.