Structuring Permanent Capital Vehicles

---
name: structuring-permanent-capital-vehicles
language: en
description: Designs permanent capital structures including listed vehicles, evergreen funds, and non-traded REITs with perpetual-life governance. Use when structuring permanent capital, analyzing evergreen mechanics, or designing listed fund vehicles.
tags:
  - fund-formation-and-structuring
metadata:
  author: casemark
  practice_areas:
    - Fund Formation
    - Fund Structuring
    - Partnership Law
  document_types:
    - Report
  skill_modes:
    - Analysis
---
# Structuring Permanent Capital Vehicles

Designs permanent capital structures including listed vehicles, evergreen funds, and non-traded REITs with perpetual-life governance.

## When To Use

- Structuring an evergreen or open-ended fund with no fixed termination date
- Designing a listed permanent capital vehicle (e.g., BDC, closed-end fund, listed partnership)
- Forming a non-traded REIT or non-traded BDC with perpetual-life features
- Converting a drawdown fund to an evergreen or semi-liquid structure
- Evaluating NAV-based subscription/redemption mechanics for open-ended vehicles
- Advising on governance frameworks that balance perpetual life with investor liquidity expectations

## Inputs To Gather

- **Vehicle type**: Listed closed-end fund, non-traded REIT, evergreen LP/LLC, interval fund, tender-offer fund, or hybrid structure
- **Investment strategy and asset class**: Illiquidity profile of underlying assets (private credit, real estate, infrastructure, PE secondaries, etc.)
- **Target investor base**: Institutional, retail-qualified, non-accredited; channel (wirehouse, RIA, institutional placement)
- **Liquidity mechanism preferences**: Periodic tender offers, interval fund redemptions, NAV-based subscriptions, secondary market listing, or no liquidity
- **Fee structure goals**: Management fee, incentive allocation/fee, early-redemption penalties, upfront placement fees
- **Regulatory regime**: 1940 Act registered vs. exempt; Regulation A+, Regulation D; state blue-sky requirements [VERIFY]
- **Tax structure**: REIT election, RIC qualification, partnership pass-through, or C-corp blocker
- **Capital raise timeline and distribution strategy**: Continuous offering, periodic closes, or single close with subsequent subscriptions

## Workflow

1. **Classify the vehicle archetype**
   - Determine whether the structure is listed vs. non-traded, registered vs. exempt, and finite-life-with-extensions vs. truly perpetual
   - Map the investment strategy's liquidity profile against the proposed redemption/liquidity window frequency
   - Identify whether 1940 Act registration is required or advisable given investor base and offering size [VERIFY]

2. **Design the capital structure and subscription mechanics**
   - Draft NAV-based subscription procedures (pricing frequency, subscription cut-off dates, minimum investment)
   - Specify share classes if applicable (e.g., Class S, Class D, Class I with differing distribution fees and minimums)
   - Define the continuous offering mechanics, including any volume caps or gross-asset triggers that pause subscriptions
   - For listed vehicles, address IPO mechanics, over-allotment options, and at-the-market (ATM) programs

3. **Construct the liquidity framework**
   - For **interval funds**: set repurchase offer frequency (quarterly typical), repurchase amount range (5%–25% of NAV), and pro-rata allocation for oversubscribed tenders [VERIFY applicable SEC requirements]
   - For **tender-offer funds**: design board-discretionary tender mechanics, establish pricing methodology, and draft early-redemption fee schedules (e.g., 2% if redeemed within 12 months)
   - For **non-traded REITs**: structure the share redemption program (SRP) with quarterly caps, hardship exceptions, and suspension triggers
   - For **listed vehicles**: assess managed distribution policies and discount-management tools (buyback programs, rights offerings)

4. **Build the governance and perpetual-life framework**
   - Draft GP/board authority provisions addressing: continuation votes, conflicts of interest in perpetual structures, valuation oversight, and independent director requirements
   - Define the valuation governance process — NAV calculation methodology, independent valuation cadence, valuation committee charter
   - Address key-person and removal provisions adapted for perpetual (no wind-down trigger, but potential conversion or internalization paths)
   - Structure advisory committee or LP advisory board role for ongoing consent on conflicts, related-party transactions, and fee modifications

5. **Design the fee and incentive architecture**
   - Structure management fees on net assets (typically 1.0%–1.75% annually for non-traded vehicles; varies for listed)
   - Design incentive fees/allocations: total-return hurdle with catch-up vs. income-based incentive fee vs. crystallization mechanics
   - Address the "perpetual compounding" problem — ensure high-water marks or loss-carryforward provisions prevent fee drag over long horizons
   - Include fee-waiver or expense-cap provisions for the ramp-up period

6. **Address tax and regulatory structuring**
   - For REIT vehicles: confirm compliance with 75% asset test, 75%/95% income tests, distribution requirements (90%+ of REIT taxable income), and TRS usage limits [VERIFY current thresholds]
   - For RIC-qualifying vehicles: validate diversification tests and distribution requirements under Subchapter M [VERIFY]
   - For partnership structures: draft allocation provisions addressing Section 704(b) substantial economic effect, and design distribution waterfall for perpetual vehicles without a traditional liquidation event
   - Evaluate UBTI exposure and blockers for tax-exempt investors

7. **Prepare the structuring report**
   - Compile vehicle comparison matrix if multiple structures are under consideration
   - Summarize key commercial terms, governance provisions, liquidity mechanics, and regulatory requirements
   - Flag open items requiring securities counsel, tax counsel, or board/GP decision

## Output

Deliver a **Permanent Capital Vehicle Structuring Report** containing:

- **Executive summary**: Vehicle type recommendation with rationale tied to strategy, investor base, and liquidity needs
- **Structure diagram**: Entity chart showing fund vehicle, GP/manager, feeder structures (if any), and blocker entities
- **Capital formation mechanics**: Subscription procedures, share class terms, continuous-offering parameters
- **Liquidity framework**: Redemption/tender mechanics with frequency, caps, pricing, and gating provisions
- **Governance summary**: Board/GP powers, valuation oversight, continuation/conversion provisions, advisory committee role
- **Fee schedule**: Management fee, incentive allocation, placement/distribution fees, expense caps
- **Tax and regulatory summary**: Qualification requirements, distribution obligations, key compliance tests
- **Open issues and recommendations**: Items requiring further counsel input, marked with [VERIFY] where jurisdiction- or regulation-dependent

## Quality Checks

- Confirm the liquidity mechanism frequency and caps are consistent with the illiquidity profile of the target asset class (e.g., quarterly tenders inappropriate for highly illiquid assets without sufficient liquid reserves)
- Verify that fee structures include appropriate high-water mark or loss-carryforward provisions for perpetual vehicles
- Ensure valuation governance is robust — independent valuation at least annually, NAV calculation methodology documented, board/valuation committee oversight specified
- Check that REIT/RIC qualification tests are accurately reflected with current thresholds [VERIFY against current IRC provisions]
- Validate that the continuous-offering mechanics include volume or asset-size triggers that prevent over-capitalization relative to deployment capacity
- Confirm governance provisions address the unique agency risks of perpetual structures (no natural wind-down discipline) including fee reasonableness reviews and periodic continuation or internalization votes
- Flag any assumptions about state-level blue-sky exemptions or NASAA guidelines for non-traded offerings [VERIFY]