GPs look to the long, long hold with new partnership structures

Silver Lake’s multi-decade strategy is the latest example of private equity grappling with how to hold on to assets beyond the traditional 10 years.

A trend that has been bubbling for several years in the private equity industry exploded to the surface in October with the partnership between sovereign wealth fund Mubadala and tech giant Silver Lake.

Mubadala agreed to invest $2 billion with Silver Lake over a “deployment lifecycle” of 25 years. The capital will be invested across structures, geographies and industries in both early and later-stage businesses.

At the heart of the partnership is the idea of holding growing businesses for the long term. Silver Lake’s co-chief executives Egon Durban and Greg Mondre say the partnership highlights the firm’s “long-term commitment to our portfolio companies.”

Change in tack

This trend marks a fundamental rethink of how private equity works. It flies against the perception of PE firms as quick ‘strip-and-flip’ shops. Certain businesses just don’t fit the traditional 10-year timetable, and GPs, being GPs, are finding ways to adapt and are using a three-pronged approach to get round these problems.

Greg Mondre
Mondre: Mubadala partnership highlights ‘long-term commitment to our portfolio companies,’ says Silver Lake co-CEO

First, they raise funds that have longer terms than 10 years, which has been the case with offerings from Carlyle Group, Blackstone and Altas Partners. Firms are also creating ‘perpetual’ pools of capital that never close and periodically welcome fresh capital from investors. Vista Equity has a product like this.

Second, GPs are increasingly using the secondaries market to move assets out of older funds and into continuation pools that give them more time to manage the assets. As firms realize that some companies need more time to execute their business plans, GP-led secondaries deals have become a routine tool.

Third, many GPs are achieving longer-term holds through routine mergers and acquisitions by holding minority stakes in companies they are selling. In this way, they can deliver proceeds to LPs and continue to ride growth. A few GPs, such as TA Associates and Sequoia, have raised funds that will invest in the firms’ own portfolio companies.

Now we see Silver Lake and Mubadala establishing what could be a generational partnership for maximum flexibility to grow technology-focused businesses.

Long-term holds are not simply the function of a certain market. They represent a different philosophy about what it means to own and manage a private business, and they have changed the way many GPs, and LPs, approach the market.