Patient capital is a type of long-term investment that is characterised by a willingness to accept lower returns in exchange for a longer investment horizon. This approach can be particularly relevant in industries that require significant capital investment and a long-term investment horizon, such as infrastructure, real estate, and energy. Patient capital can allow investors to take a longer-term view of their investments and to be more patient in waiting for returns to materialize.
One advantage of patient capital is that it allows investors to generate higher returns over the long term. While patient capital investments may yield lower returns in the short term, they have the potential to generate higher returns over time as the underlying investments mature and generate cash flow. This approach can be particularly attractive to institutional investors, such as pension funds and endowments, who have long-term investment horizons and a need to generate consistent returns over time.
Another advantage of patient capital is that it can allow investors to support the growth and development of companies. By providing patient capital, investors can provide the necessary funding to support expansion and new initiatives, which can help to drive long-term growth and value creation.
However, there are also some disadvantages associated with patient capital. One disadvantage is that it can be difficult to find suitable investments that meet the requirements of patient capital investors. In some cases, patient capital investors may need to be willing to invest in unproven technologies or untested business models, which can carry higher risks than more established investments. Additionally, patient capital investments can be illiquid, which means that investors may not be able to easily sell their positions in the event of a change in circumstances.
In the private equity (PE), venture capital (VC), and investment banking spaces, patient capital is particularly relevant. This approach is characterised by a willingness to accept lower returns in exchange for a longer investment horizon and a more patient approach to investing. Recent examples of patient capital deals include the acquisition of PetSmart by BC Partners, the investment by SoftBank in WeWork, and the financing of large-scale infrastructure projects. These deals demonstrate the potential for patient capital to support long-term growth and value creation, even in industries that are typically associated with short-term performance pressures.
In recent years, there has been a growing trend towards longer investment horizons and a more patient approach to investing, as investors seek to generate sustainable returns over the long term. This trend is expected to continue in the coming years, as investors become increasingly focused on the environmental, social, and governance (ESG) aspects of their investments and seek to support companies that are making a positive impact on society and the environment.
In conclusion, patient capital is a type of long-term investment that has several advantages and disadvantages. While it can be challenging to find suitable investments that meet the requirements of patient capital investors, this approach can help to support long-term growth and value creation, particularly in industries that require significant capital investment and a longer investment horizon. As investors become increasingly focused on ESG considerations and seek to generate sustainable returns over the long term, patient capital is likely to remain an important part of the investment landscape.
