Perpetual Fund ≠ Perpetual Capital

Is the Juice worth the Squeeze?

Executive Summary 

The non-traded REIT market has shifted from lifecycle vehicles to perpetual structures. That shift is widely understood in terms of liquidity, product design, and distribution efficiency. It is less well understood in terms of capital duration and its economic consequences. Investment Managers and platforms have become enamored with evergreen funds. But evergreen funds does not imply evergeen capital.  This note examines the dynamics of the shift to perpetual vehicles through a single lens: how long capital stays and what it costs to keep it.

Four observations follow:

1. Lifecycle vehicles hold capital materially longer. Using a FIFO dollar-weighted methodology, lifecycle REITs held investor capital for a weighted average of 7.8 years versus 2.9 years for perpetual NAV REITs.

2. Shorter duration materially increases the manager’s cost of capital. The cost or retaining the same amount of capital is 2.7 times higher in a perpetual fund

3. Management fee economics alone favor lifecycle structures. Net fee retention per dollar of AUM is 0.87% versus 0.22% under equivalent cost to raise funds assumptions.

4. Performance fees invert the outcome. At realistic levels, perpetual structures produce superior economics for the investment manager while remaining structurally less favorable to investors.

5. The fee alignment asymmetry is structural, not incidental. In lifecycle vehicles, performance fees are earned on realized proceeds only after investors have received return of and return on their capital. In perpetual vehicles, fees crystallize against manager-produced NAVs before capital is returned and before any transaction validates the appraised value. Investors have, in several cases, paid fees on gains that subsequently reversed, with no claw back applied.

The implications differ by constituency. For investment managers, the perpetual structure is economically superior at any realistic scale once performance fees are present, but that advantage is built on a model of continuous capital formation and asset-liability management that is acutely exposed under stress. For investors, lifecycle structures are less costly and more aligned, at the direct expense of liquidity. For due diligence officers, approving a perpetual vehicle means accepting a fee framework that departs from the institutional whole-fund waterfall standard, a departure that becomes most visible, and most consequential, precisely when redemption gates are imposed. Whether the liquidity premium justifies that trade-off is the central question this note raises but cannot resolve on the reader’s behalf.

1.  Evolution of Structure

The structure of non-traded real estate investment vehicles has evolved significantly over the past two decades. From the early 2000s through approximately 2017, capital formation in the non-traded REIT market was dominated by lifecycle vehicles, closed-end structures designed to raise capital over a defined offering period, deploy it across a target portfolio, and ultimately return principal through a defined liquidity event. Investor experience was shaped by a clear, if extended, path to capital recovery. Exit took the form of a listing, merger, or asset sale, and the return of capital was the terminal measure of performance.

In the years that followed, the market shifted meaningfully toward perpetual REITs. These structures offer periodic liquidity through share repurchase programs (SRPs), support continuous capital formation, and rely on ongoing net asset value (NAV) pricing rather than moving toward a terminal exit. Rather than closing to new investment and working toward a liquidity event, perpetual vehicles are designed to operate indefinitely, with capital recycled through subscriptions and redemptions.

The drivers of this shift are multiple: investor demand for periodic liquidity, the advantages of continuous capital formation without new registrations, the higher valuation multiples afforded investment managers for assets under management with recurring revenue characteristics, and the regulatory environment created by the SEC's enhanced disclosure requirements for non-traded programs. But the shift also raises a more fundamental question that has received less systematic attention: which structure is preferred from the perspective of investment returns and persistence of capital, and does that preference align with investor interest in capital duration and certainty of return?

This note does not offer a definitive resolution to that question. It does, however, challenge the current market assumption that perpetual REITs are the obvious choice. The analysis requires a comparison across valuation regimes that are not directly compatible. Lifecycle vehicles ultimately return capital through asset sales or terminal transactions, realized proceeds are the measure of outcome. Perpetual vehicles rely on investment manager-produced NAVs to represent value at a point in time. One reflects an ongoing estimate; the other reflects realized proceeds. Return comparisons across these structures obscure more than they reveal, and we set that question aside.

What we can measure with precision is capital duration, how long investor capital actually remained, and what that duration costs the manager to maintain. Those two measures, taken together, provide a clean framework for evaluating the structural incentives embedded in the industry's evolution. What remains unanswered is whether investors are better off holding through a complete investment cycle, and whether a manager-controlled exit generates a better investment outcome. Manager-controlled liquidity events are often cited in private equity as "discretionary exit timing", the argument that the manager's ability to sell into strength, rather than on a fixed schedule or in response to redemption pressure, benefits investors through optimal exit pricing. That question too is set aside for this analysis.

A third structure exists and deserves acknowledgment before this note narrows its focus. The drawdown or committed capital vehicle, common in institutional private equity and in private real estate, calls capital as investments are identified, deploys across a defined investment period, and returns proceeds through asset realizations without a realization through a NAV mechanism. MOIC and IRR represent the experience of all investors in the fund. The drawdown model is materially less accessible in the wealth management and registered investment adviser channel, where lifecycle and perpetual vehicles have historically dominated, and as such falls outside the scope of this analysis.

2.  Defining Capital Duration

The Measurement Challenge

Capital duration, in this context, refers to the length of time between the moment investor capital enters a fund and the moment it is returned. In a lifecycle structure, that endpoint is unambiguous: capital is returned at the liquidity event, and the measurement is complete. In a perpetual structure, the endpoint is ambiguous: some capital exits through the SRP, some remains outstanding, and some, during periods of elevated redemption pressure, is gated and unable to exit on the investor's intended schedule.

A rigorous measurement framework must account for these differences without conflating them. We apply a first-in, first-out (FIFO) dollar-weighted methodology, the same framework applied to both fund types, which matches each dollar of redemption to the earliest un-redeemed raise cohort and computes a weighted average holding period across all matched lots.

 

The FIFO Method

The FIFO method operates at the dollar level. Each quarter of fundraising creates a cohort of capital with a specific entry date. Each redemption dollar is matched to the earliest available cohort. The holding period for each matched lot is the number of quarters between the raise cohort and the redemption event, converted to years. The weighted average across all lots, weighted by dollar amount, produces the FIFO duration.

• FIFO Duration (years) = Σ [Matched Amount(i) × Hold Period(i)] ÷ Total Matched Amount

• Where Hold Period(i) = (Redemption Quarter − Raise Cohort Quarter) ÷ 4

• Applied identically to lifecycle and perpetual structures. For lifecycle funds, the terminal liquidity event is treated as the final redemption quarter for all remaining outstanding capital.

The author acknowledges John Palmer, who originally identified capital duration using the FIFO method as a meaningful lens for evaluating NAV REIT structures and separately analyzed a smaller data set arriving at similar findings. The author has not reviewed Mr. Palmers underlying data or analysis.

For lifecycle funds, this produces a complete and final measurement. Every dollar that entered is eventually matched, either through a small number of interim redemptions during the fund's life, or through the terminal liquidity event when the fund closes and all remaining capital is returned. The typical lifecycle structure offered redemptions of up to 5% of shares in a 12-month period, sometimes subject to DRIP proceeds. The FIFO duration for a lifecycle fund account for 100% of capital raised.

For perpetual funds, the FIFO duration is a partial and ongoing measurement. It reflects only capital that has already successfully exited through the SRP. It excludes two populations of capital that are analytically significant: capital that remains outstanding in the fund and has not yet sought redemption, and capital that entered the redemption queue but was gated, either denied or deferred, during periods of elevated outflows. Both populations are likely to have longer true holding periods than the exited capital captured in the FIFO average.

The lifecycle FIFO duration is the whole story. The perpetual FIFO duration is, at best, the story of the capital that got out. One of the important takeaways from this analysis is whether investor capital in the new structure is as patient as otherwise intended or contemplated for vehicles marketed as semi-liquid. That is the shock value of the 2.9 years of duration.  It reflects neither the manner in which it is introduced to the investor nor the managers expectations. It is however the math and largely responsible for the consternation in recent times!

3.  Lifecycle Duration, The CPA Evidence

The Corporate Property Associates (CPA) series, managed by W. P. Carey Inc., represents the most complete and longest-running data set available for lifecycle non-traded REIT structures in the U.S. market. CPA 16, CPA 17, and CPA 18 each followed the same structural model: a defined offering period, a net lease commercial real estate portfolio, and an eventual liquidity event through merger into WPC. For purposes of this analysis it is used to represent lifecycle REITs.

Structure of Capital Return

A critical characteristic of the lifecycle FIFO result is the composition of matched capital. Across all three CPA funds, 88–91% of total matched capital exited through the terminal liquidity event, not through interim redemptions during the fund's operating life. Interim redemptions, representing early or hardship exits through the fund's limited repurchase program, accounted for only 9–12% of total matched capital.

The duration is driven almost entirely by the terminal event, which is the appropriate anchor for a lifecycle vehicle.

The consistency across three vintages separated by a decade of economic cycles is also significant. CPA 16 raised capital through 2006 into the pre-crisis environment. CPA 17 raised capital from 2008 through 2012, spanning the financial crisis. CPA 18 raised capital in 2013 through 2015. Despite these different environments, FIFO duration clustered tightly: 7.62 to 8.10 years. The conclusion holds across vintages.

It is also worth noting that by offering a series of successive funds, the firm was in a virtual perpetual fundraise, the functional equivalent of the current NAV REIT model in terms of continuous capital formation, but with each fund retaining a defined endpoint and terminal return of capital.  It is further worth noting that the firm chose not to raise capital in 2007 as it found market pricing for real estate assets unfavorable for generating long term returns.

4.  Perpetual Duration, What the Data Captures

Applying the same FIFO methodology to the leading perpetual NAV REITs, using quarterly fundraising and redemption data from R.A. Stanger & Co. across the top ten funds by AUM, produces a weighted average FIFO duration of 2.9 years. The range across individual funds runs from 1.7 years (JLL Income Property Trust) to 4.2 years (Hines Real Estate Investment Trust), with the majority clustering between 2.5 and 3.2 years. It is notable that the duration of investor capital across all ten funds falls within a narrow range.

The Incompleteness of the Perpetual FIFO Number

The 2.9-year weighted average warrants careful interpretation. Unlike the lifecycle FIFO number, which accounts for 100% of capital raised, the perpetual FIFO number accounts only for capital that has already successfully exited through the SRP. Two additional populations of capital are not reflected in this figure.

Outstanding capital represents the majority of AUM in most perpetual vehicles. BREIT alone carries approximately $34.9 billion in outstanding capital as of early 2026. A significant portion of this capital was raised in 2019 through 2022, meaning it has already been invested for three to seven years without exit. That capital's true duration is still accumulating and already exceeds the 2.9-year FIFO average. It has not been returned. It has no defined return date.

The following table illustrates the challenge of perpetual REIT structures through the lens of net flows and balance sheet contraction in BREIT. Note the eleven consecutive quarters of net outflows beginning in Q4 2022, a pattern not fully appreciated by industry observers who focus primarily on caps and capital preservation mechanics. Cumulative gross capital raised in BREIT is $80.2 billion versus current net investor capital of $34.9 billion still outstanding. $45.3 billion has been returned through redemptions since inception.  Absent the $4.5 billion capital infusion from the University of California in Q1 2023, which carried a supported minimum return and a six-year minimum hold period, the fund has been net negative for thirteen consecutive quarters. See BREIT chart below.

Gated capital represents dollars that investors sought to redeem and could not. The SRP restrictions implemented by beginning in late 2022 and continuing through 2023 resulted in multi-quarter redemption queues. Capital that entered the queue and waited experienced a holding period materially longer than the investor intended. This capital is not captured in the FIFO duration in a way that reflects investor intentions, it eventually exited and appears as a normal redemption in the average, but the size and duration of the queue itself is masked. Readers are encouraged to read "Five Years, Not Five Quarters: Queue the Math" (Altsmi Research, March 10 and April 5, 2026) for a detailed treatment.

The practical implication is that the true capital intended duration in perpetual vehicles would have been less than 2.9 years had SRP caps not constrained redemptions. We know a lot about the capital that sought an exit, there is no empirical basis today on which to quantify the full outstanding capital duration precisely.  It could exhibit similar characteristics as redeemed capital or not.

5.  Cost of Capital, The Manager's Economics

Duration of capital has a direct and underappreciated implication for investment manager economics. Every dollar of AUM has a cost to acquire, the capital raise expense, and the rate at which that cost accrues against any given dollar depends on how long that dollar stays in the fund. Shorter duration means higher annualized acquisition cost per dollar of AUM.

 

Annualized Raise Cost

If we assume a 3% total cost of raising one dollar, covering dealer concessions, placement fees, wholesaling, and conference expenses, the annualized cost of holding that dollar is simply:

• Annualized Raise Cost = Total Raise Cost ÷ Capital Duration

• Lifecycle (7.80 yrs):   3.0% ÷ 7.80 = 0.38% per dollar per year

• Perpetual (2.9 yrs):   3.0% ÷ 2.9 = 1.03% per dollar per year

• Raise cost efficiency advantage of lifecycle structure: 0.65% per dollar per year

At a standard management fee of 1.25% per annum, the net fee income per dollar of AUM, after subtracting annualized raise cost, is substantially different across structures:

The lifecycle structure retains 0.87 cents of every fee dollar earned. The perpetual structure retains only 0.22 cents on the same basis. The perpetual vehicle spends four times as much, per dollar of AUM, just to have that capital in the fund. Said another way, the net fee generation from management fees alone would be equal in a lifecycle REIT for one-quarter of the capital raise of a perpetual vehicle.

 

Performance Fees and the Complete Fee Picture

The management-fee-only analysis establishes a baseline but is incomplete. Performance fees are a material component of investment manager economics in both structures, and they behave differently enough across lifecycle and perpetual vehicles to materially alter the breakeven calculation and to raise structural questions about fee alignment that are of direct relevance to managers, investors, and due diligence officers.

The Manager Perspective

In a lifecycle structure, the performance fee, typically a promoted interest of 15% of net proceeds above a preferred return hurdle of 6–8%, or a subordinated disposition fee, is earned once, terminally, only after the liquidity event confirms realized proceeds exceed the hurdle and all investor capital has been returned. Annualized over the fund's duration, a lifecycle promote typically equates to approximately 0.10–0.26% per year. That is meaningful, but modest on an annualized basis. Critically, it cannot be earned until the manager has delivered a realized exit and investors have received both the return of their capital and a return on their capital.

In a perpetual structure, performance fees, commonly 12.5% of total return above a soft hurdle of 5%, accrue on an ongoing basis against NAV appreciation. The manager earns continuously, predictably, and without a terminal obligation. No exit is required. No return of capital is required. The fee crystallizes against a number the manager's appointed appraiser produces.

The breakeven perpetual performance fee, the rate at which the two structures reach economic equivalence, is 0.65% per year without adjusting for the lifecycle promote, and approximately 0.80% per year when the lifecycle promote is annualized and included. Most perpetual vehicles operating with a performance fee structure are above this threshold in a normal return environment. At a 1.0% effective annual performance fee, the raise-cost advantage of the lifecycle structure disappears entirely. The investment manager will earn greater absolute fees for the same AUM in almost all instances under the perpetual structure. The converse is equally clear: with realistic performance fees, the lifecycle fund is economically superior to a perpetual vehicle for investors.

The Investor Perspective

In a lifecycle structure, the performance fee is earned on realized proceeds, dollars the investor has already received back. The manager cannot extract a promote until the investor has capital plus preferred return confirmed in cash by a completed transaction. The alignment is structural and enforceable: no exit, no promote.

In a perpetual structure, performance fees crystallize on NAV appreciation before capital is returned, before the preferred return is confirmed in cash, and before any transaction validates the appraised value. If NAV subsequently declines, as occurred across the sector in 2022-2023, the investor has paid fees on gains that did not persist. Most perpetual structures include a high-water mark that prevents re-earning fees on recovered losses, but fees paid on temporary appreciation are not clawed back. The investor has permanently transferred wealth to the manager on gains that proved transient.

The investor in a lifecycle vehicle cannot be put in this position. No promote is earned until exit confirms the value. The asymmetry is structural. For the same portfolio performance an investor pay less in fees in a lifecycle fund in almost all instances. The biggest offset for the inferior fee structure is the access to greater liquidity.

The Due Diligence Officer Perspective

The professional standard among institutional due diligence officers is the whole-fund waterfall: no performance fee crystallization until all original capital is returned to investors and a defined preferred return is achieved in cash. This preference is widely held because it maximally aligns manager incentives with investor outcomes, the manager earns carry only after investors are made whole.

Perpetual structures do not satisfy this standard. There is no terminal event at which the whole-fund waterfall can be applied. The DDO who recommends a perpetual vehicle is, by definition, approving a fee structure they would not likely design if given a clean sheet, IF NOT for the higher liquidity provisions afforded in perpetual vehicles. That is not a reason to refuse the recommendation, but it underscores the tension when perpetual REITs suspend redemptions. It undermines the fundamental premise of why the structure was approved at the outset.

Post-approval of a perpetual fund, the DDO retains one meaningful lever: the decision to cease offering the fund. That decision is communicative. An investor or adviser reading it understands its implication, even without an explicit recommendation to redeem. It is an indirect but real signal. It is also asymmetric: ceasing to offer protects future investors more than it helps committed capital, and it carries a relationship cost with the manager as well as implications for their existing investor base. It is indeed a two-edged sword.

The lifecycle structure places no equivalent burden on the DDO post-approval. The fund has a defined endpoint. The DDO's original recommendation is validated or refuted by realized proceeds at the liquidity event. The perpetual structure offers no such reckoning. However, in a lifecycle fund it leaves no interim action for a DDO to take if unhappy with fund management or performance.

 

Capital Deployment and Duration

These structural differences also influence capital deployment in ways directly tied to duration. Lifecycle vehicles are designed to move toward full investment and eventual realization, aligning capital deployment with a defined path to returning principal. As the fund matures, capital is increasingly concentrated in held assets working toward exit.

Perpetual vehicles, by contrast, must retain liquidity to manage inflows and redemption requests. That requirement affects how consistently capital is deployed and, more importantly, how and when it can be returned to investors. Capital is continuously priced but only partially returned, and the timing of full capital recovery, if it occurs at all, remains structurally undefined. In short, the lifecycle vehicle is built to fully deploy capital and ultimately return it. The perpetual vehicle is built to continuously recycle it.

6.  NAV as Transaction Price

The lifecycle-to-perpetual shift has produced a consequential change in the role of NAV that has direct implications for how capital duration is experienced by investors at the point of exit.

In lifecycle structures, NAV-based valuation always played a role, quarterly appraisals informed the interim assessment of portfolio value. But realized outcomes were determined at the point of liquidity. Capital was returned through asset sales or a terminal transaction, and that event, not interim NAV, defined investor experience. NAV was an estimate en route to a realized result.

In perpetual structures, that dynamic has shifted fundamentally. As investors increasingly access liquidity through mid-cycle redemptions rather than through a terminal event, NAV is no longer simply a reporting metric, it becomes the transaction price. Investors buying into a perpetual vehicle purchase at NAV. Investors redeeming exit at NAV. The methodology used to produce that NAV, the choice of appraisal assumptions, cap rate inputs, discount rates, and the timing of marks, is no longer an internal reporting question. It is the mechanism through which capital is returned in real time.

This shift has placed NAV determination at the center of due diligence in perpetual vehicles in a way it never was for lifecycle programs. The question of whether IM-produced NAVs are timely, independent, and representative of achievable transaction prices is not merely academic, it determines whether investors who redeem mid-cycle receive fair value for their capital. That question falls squarely within the analytical responsibility of due diligence officers evaluating these structures. It is also directly connected to the performance fee discussion in Section V: if NAV is both the transaction price for redeeming investors and the basis on which performance fees accrue, the independence and methodology of that NAV carry dual consequences.

7.  The Open Question

The industry's evolution toward perpetual vehicles is not simply a response to investor demand for liquidity. It allows advisors an opportunity to continuously allocate and moderate to private market assets efficiently. It improves the timing and visibility of value through continuous and consistent reporting of NAVs.  The larger scale of these funds materially improve diversification.   It is also, a fee structure that is materially superior for the investment manager at any realistic scale, provided performance fees are present. The offset is that the manager is charged with an asset-liability management of a balance sheet that may contract at times of stress and must maintain liquidity at all times to meet investor redemptions.

The data establishes what it can: duration, cost, and the structural asymmetries embedded in each model as seen from the perspectives of the manager, the investor, and the due diligence officer. The question of which structure produces better outcomes, and for whom, remains open, and properly so.

For investment managers evaluating product design, and for due diligence officers evaluating fund structures on behalf of their clients, the question is whether the juice is worth the squeeze.  We leave that conclusion to the reader.

DISCLOSURES AND IMPORTANT INFORMATION

This research note is prepared by Altsmi for informational purposes and is intended for investment professionals and institutional due diligence officers. It does not constitute investment advice, a solicitation, or an offer to buy or sell any security or fund interest. All quantitative analysis is based on publicly available data sourced from R.A. Stanger & Co. FIFO duration calculations were performed by Altsmi and represent Altsmi's analytical interpretation of that data. Past performance and historical structural characteristics are not indicative of future results. The breakeven analysis presented in Section V relies on assumptions, including a 3% raise cost, 1.25% management fee, and illustrative performance fee rates, that may not be representative of any specific fund or manager. Results are sensitive to these inputs. Readers should apply their own assumptions and conduct independent analysis.