Perpetuate Capital, a private credit fund specializing in employee trusts has announced that it will close its latest funding round by the end of this year. Perpetuate Capital is appealing to investors to avail of this format, as it provides private equity-like returns while reaching an underserved niche and resulting in a win-win situation for all parties involved.
According to Perpetuate Capital, employee trusts are a more sustainable and creative way to invest capital, preserving the legacy of business founders and the corporate culture they have built over years and decades. Perpetuate Capital argues that the private equity industry’s focus on short-term growth of valuations has an inherent conflict with the long-term values of owners, employees, and the communities where they live. Private equity investors seek to acquire a company, pump up its valuation, and sell it at a profit, which can result in the loss of many unique characteristics of the businesses they invest in.
On the other hand, employee trusts enable businesses to retain their character, while providing higher benefits for their employees upon retirement. By being sold to an employee trust, a company’s employees slowly vest into becoming beneficiaries of the dollar value of the stock that was sold to the trust.
Thomas Mallon, General Partner at Perpetuate Capital, says that investing through an employee trust is especially beneficial for purpose-driven businesses, which are guided by a shared vision regarding a social issue, whether religious, cultural, or social. The liquidity needs of Christian-owned and values-led businesses, which is just a small subset of the lower middle market, is estimated at $20 billion over the next 10 years, based on a conservative estimate of 3000 companies across the United States.
“We're closing our funding round, which has been well-received, at year-end. Total investments for the round are estimated at around $40 million, and we're looking to take that even further,” Mallon says. “Additional investment will allow us to diversify to more companies, serve more people, and get institutions involved in this very specialized private credit investment that they have never touched upon before.”
Mallon says that Perpetuate Capital is taking a modified and more prudent approach to private equity investing, by doing so via private credit. The firm is seeking to deliver to the investor partners a regular income and a share of the growth in equity in the business during the term of the investment. He adds that private equity investing is hampered at present due to the economy’s position in the inflationary-recessionary cycle in the economy. As a result, private credit investing is becoming more popular, with an assortment of new investments being raised by private credit funds such as Perpetuate Capital.
“Due to its short-term nature, private equity investing is on the back foot because of the higher cost of debt over the next 10 years, due to where we are in the interest rate cycle. This is why we're seeing many private credit funds emerging, filling the void left by banks that are pulling back,” Mallon says.
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