Traditional private equity firms operate closed end funds.  These funds have a typical term of 10-12 years.  During that term there is a commitment period and an investment period that runs somewhat concurrently but may extend an addition 1-2 years.  This type of fund enables PE firms to raise large amounts of capital, usually from institutional investors, to use for the acquisition of middle market companies.  The goal of the PE firm is to increase the value of each portfolio company and then sell it for a profit.  This entire process is accomplished between 3-7 years.   In return for their services, PE firms charge an annual fee of 2% of committed capital.  Additionally they take 20%  of the carried interest from realized investments.

Due to several limitations of this model, GCP operates an “evergreen” holding company model instead.  This is similar to how Warren Buffet built Berkshire Hathaway.  Some of the advantages of this model are:

• No fund expiration date. With no fixed timeline, GCP can have the patience to develop and grow its investments. Sales of investments are based on financial return, not artificial deadlines.
• Promotes base hits vs. home runs. Since there is no artificial end date and returns are distributed annually, there is no need to search for “home run” investments.
• Able to invest in flow though tax entities (LLCs). Many traditional PE and VC firms must invest in C Corporations due to restrictions by the institutional investors.