Momentum is growing toward private equity structures with longer term time horizons and movement toward more “permanent capital” — structures that are more similar to Berkshire Hathaway and Greybull Stewardship (my private equity fund focused on companies with $1-3 million in profit).

Blackstone private equity stretches the field

At last month’s SuperReturn conference in Berlin, Blackstone made headlines by pronouncing its interest in forming a “coalition” to invest outside its ten-year funds.  Blackstone’s Head of Private Equity, Joe Baratta, said, “I don’t know why Warren Buffett should be the only person who can have a 15-year, 14% sort of return horizon.”  He continued, “There are clearly assets” that benefit from such a structure, and “it opens up a whole universe of companies that we are not currently accessing.”

Baratta explained that Blackstone’s structure (like most of private equity) is best when transforming a company over a 3-6 year time frame.  “To do that you have to find a company that you can fundamentally transform,” he said.  “But there are a whole bunch of other companies in the world that would benefit from private governance rather than public governance, or a more active owner rather than a corporate owner, that have low volatility, and good competitive positions.”

Private equity long-term already inside Greybull

This is exactly why I formed Greybull Stewardship.  There is a universe of great companies that do not want to sell themselves to a competitor and risk losing their uniqueness or sell themselves to a private equity firm that needs to “transform” the business quickly in order to generate their return and sell the business.

As Fortune magazine explains, This structure “would give Blackstone more investment flexibility, as traditional private equity fund terms require portfolio copanies to sometimes be sold before the firm otherwise would like to exit.  Remember, no one tells Buffett he needs to sell a company because of market-standard fund terms.”

Related Posts and Articles

• Wall Street Journal article about Baratta’s comments at the Super Return Conference
• Fortune magazine’s article about longer-term funds “Blackstone Chases Buffett”
• Evergreen fund structure offers new opportunities
• Perfect business financing — maybe no outside equity