From Buy-and-Flip to Forever Funds
The five-to-seven-year exit cycle has defined private equity for decades. But something is shifting. A growing number of newer and mid-sized firms, particularly in commercial real estate, are stepping back from the traditional fund model and positioning themselves instead as long-term holding companies or evergreen vehicles.
The pitch to investors is different: less about the exit multiple, more about steady operational cash flow, durable distributions, and an ownership philosophy that looks more like Berkshire Hathaway than a vintage-year buyout fund. Whether this represents a genuine structural evolution or a rebranding exercise is a question worth examining — and few are better positioned to answer it than the attorneys structuring these vehicles from the ground up.
Jane Trueper is a partner in Lathrop GPM‘s Fund Formation practice, where she advises privately held companies ranging from emerging growth businesses and founder-led organizations to fund sponsors and managers across the full lifecycle of a business. Trueper discusses the forces driving the trend, how fund structures are changing and whether permanent capital vehicles could reshape private markets.
CM: What are you seeing on the ground that tells you managers are genuinely pivoting away from the classic five- to seven-year private equity exit cycle?
JT: The clearest signal I see is in the fund documents themselves. When a first- or second-time sponsor comes to us today, the term sheet increasingly contemplates something other than a fixed term with a hard wind-down date. We are drafting longer investment and harvest periods, more generous extension options, and, most tellingly, distribution waterfalls built around current yield and operating cash flow rather than a single back-end capital event. A few years ago, a sponsor’s entire economic story was the exit multiple. Now I am routinely advising sponsors whose pitch to investors is steady, durable distributions from an asset they intend to own and operate for the long term.
The second signal is behavioral. Sponsors are asking us how to keep optionality open rather than how to force a sale on a predetermined timeline. The traditional thesis of buying a well-located asset, riding a period of cap rate compression, and selling at a profit has become much harder to underwrite in the current rate environment. When you cannot count on the market to do the heavy lifting, you have to generate returns by actually operating the asset, and that takes more than five to seven years to play out. So the pivot is partly conviction and partly necessity, and I think it is important to be honest about both.
CM: Is this shift toward long-hold and evergreen structures concentrated among a niche set of managers, or is it becoming a mainstream conversation across your client base?
JT: It started niche, but it has become a mainstream conversation, with an important caveat. Not every sponsor who asks about an evergreen or long-hold structure ends up adopting one. What has changed is that it is now on the table in almost every fund formation conversation I have, including with first-time sponsors who, frankly, are sometimes better positioned to build a long-hold model from inception precisely because they are not anchored to a legacy track record of quick flips.
I’d distinguish between two camps. One camp is reacting to current market conditions: the exit window is unattractive, so they want flexibility to hold longer and avoid a forced sale into a soft market. The other camp is building intentionally: designing a long-term holding company or evergreen vehicle from day one because they believe their strategy and their assets reward patient ownership. The first camp is asking for extension flexibility bolted onto an otherwise traditional closed-end fund. The second camp is rethinking the architecture entirely. Both conversations are now common, but they call for very different documents.
CM: Within commercial real estate, what types of assets lend themselves best to these long-hold or evergreen approaches?
JT: The assets that lend themselves best are what I’d call operationally intensive, where returns depend not just on what you own, but on how well you run it. Think data centers, senior and student housing, cold storage, self-storage, medical office, and other healthcare-adjacent facilities. These are not assets where you sign a long-term net lease with a creditworthy tenant and collect rent. Their financial performance is driven by the quality of operations: staffing, technology systems, regulatory compliance, and the resident or tenant experience. That operational value compounds over time, which is exactly what a long-hold or evergreen structure is designed to capture.
Senior housing is the clearest illustration I have seen. The demographic tailwind of an aging population and an inadequate supply of purpose-built housing is powerful and durable.
But you can’t succeed there simply by buying real estate; you need genuine operational expertise in nursing, healthcare navigation, regulatory compliance, and resident services. The sponsors winning in that space have either built or partnered with an operating platform, and that kind of platform takes years to mature. By contrast, a commodity asset whose value really does rise and fall with the broader market is often better suited to a traditional buy-fix-sell approach.
The long-hold model fits where operational skill, not market timing, is the engine of return. I’m seeing this reflected in the market. Recent value-add vehicles in operationally intensive sectors like manufactured housing, for example, are being raised by newer sponsors specifically organized around running those assets, not just owning them.
CM: Do you see differences in how core/core-plus versus value-add/opportunistic CRE managers are adopting or resisting evergreen models?
JT: Yes, and the difference is fairly intuitive. Core and core-plus strategies are a natural fit for evergreen and long-hold structures. These are stabilized, income-producing assets where the return profile is built around steady yield and modest appreciation. An open-ended or evergreen vehicle that holds those assets indefinitely and distributes current income maps almost perfectly onto how the strategy generates returns. For these managers, the evergreen model is less of a leap. It removes the artificiality of selling a perfectly good income asset just because the fund clock ran out.
Value-add and opportunistic managers have a more complicated relationship with these structures. Their entire model has historically been a finite arc: acquire, reposition, stabilize, and exit to crystallize the promote. An evergreen structure complicates the promote, the valuation mechanics, and the entry-and-exit pricing for investors who come and go at different times. That said, this is where I’m seeing the most creative structuring.
Some value-add sponsors are adopting hybrid approaches like a closed-end fund with the flexibility to roll a stabilized asset into a longer-hold vehicle, or to use a continuation vehicle to extend ownership of a winner rather than selling it. So, I wouldn’t say opportunistic managers are resisting; instead, I’d say they are adapting the tools rather than wholesale converting to evergreen.
CM: Longer holding periods can magnify governance and conflict issues. What are the biggest legal or fiduciary pitfalls you’re advising GPs to anticipate?
JT: Valuation is at the top of the list. In a traditional closed-end fund, the market sets the price at exit. In a long-hold or evergreen structure, the sponsor is repeatedly relying on its own NAV to support distributions, calculate fees, and, critically, price interests for investors entering or exiting the vehicle. When the GP’s compensation is tied to a value the GP itself determines, you have a built-in conflict that must be managed with independent valuation processes, clear methodologies, and real transparency. I spend a lot of time helping sponsors build governance around valuation precisely because it is the issue most likely to generate an investor dispute or regulatory scrutiny years down the road.
The second pitfall is the conflict embedded in any liquidity mechanism such as continuation vehicles and affiliate transactions. When a sponsor moves an asset from one fund it controls into another fund it controls, it sits on both sides of the table. Independent advisory committee approval, robust disclosure, and sometimes independent fairness processes are essential.
Third, I counsel sponsors to think hard about fee and promote structures over a long horizon: a fee stream that looks reasonable over five years can look different over twelve, and investors will scrutinize whether the economics still align interests late in the hold. And finally, there is the alignment-of-interest and key-person question. In operationally intensive strategies, the “key person” may be an operating executive, not just an investment professional, and the partnership agreement needs to account for that.
Underlying all of this is the reality that the regulatory environment for private fund advisers continues to emphasize transparency, fuller disclosure, and careful handling of conflicts and side letters, so building these protections in at formation is far cheaper than retrofitting them later.
CM: For an emerging PE or CRE manager considering a long-hold strategy, what are the top three questions they should answer before they even draft a term sheet?
JT: First: What is your liquidity architecture? A long-hold strategy is fundamentally a bet that you can hold through cycles, but your investors will still need a path to liquidity at some point. Before you draft a term sheet, you need to know whether you are offering periodic redemption windows, a defined extension-and-exit framework, the option to use continuation vehicles, or some combination. Liquidity is a hard thing to retrofit, and it drives nearly every other structural decision. I’d add that liquidity is the central tension for your investors. Many LPs are already wrestling with capital that has been called but not yet returned, so they will press hard on how and when they get money back.
Second: Does your operational capability actually justify a long hold? If the entire premise is that you create value by operating the asset over time, you need to be honest about whether you have the platform, the talent, and the systems to do that, or at least a credible plan and a partner to build it. Investors will see through a long-hold story that is really just a market-timing bet in disguise.
Third: How will you value the portfolio and align economics over a longer horizon? You need a defensible answer on valuation methodology, on how and when you take your promote, and on how you keep your interests aligned with investors who may hold for ten years or more. If you cannot articulate that clearly before the term sheet, you are not ready to go to market. Getting these three questions right up front also helps you choose the right offering structure. Most of these vehicles are raised as private placements under Regulation D, and the design choices you make here shape everything from your investor eligibility to your disclosure obligations.
CM: Is this a cyclical response to today’s market conditions, or do you believe we are witnessing a fundamental evolution in how private capital is raised and deployed?
JT: I think it is both. Some of what we are seeing is unquestionably cyclical. When exit markets reopen and the bid-ask spread narrows, a meaningful number of sponsors who are holding longer today will happily return to a more traditional buy-fix-sell rhythm. For them, the long hold is a reaction to conditions, not a conversion of philosophy.
But also, I do believe there is a genuine structural evolution underway. The shift toward operationally intensive assets, the rise of alternative structures like joint ventures, co-investments, and continuation vehicles, and investors’ growing comfort with putting capital directly into operating platforms are not going to reverse when rates come down. They reflect a deeper change in where value comes from in real estate and how capital and operational expertise are coming together.
My view is that traditional closed-end, finite-life funds and longer-hold or evergreen vehicles will coexist. The sophisticated sponsors are not abandoning one model for the other; they are building the capability to use whichever structure fits the asset, the strategy, and the moment.
