Patient Capital: An Alternative to Traditional Private Equity

When a Spanish middle-market entrepreneur looks for a financial partner, the options they find are surprisingly limited. The large funds do not consider deals below a certain size. Venture capital funds are looking for technology and exponential scale. And the middle-market funds that do operate in their segment typically come with a clock set at three to five years until divestment.

There is an alternative that does not make headlines but has been generating results for decades: patient capital.

The problem with the clock

The classic private equity model works as follows: a fund raises capital from institutional investors (LPs), deploys that capital within a set timeframe, manages the companies for three to seven years, and divests them to return capital with a profit to its investors. Then it raises a new fund and repeats the cycle.

It is a model that has generated extraordinary returns in many segments. I have nothing against it. But it has a structural limitation: the clock. From the moment the investment closes, there is an implicit — and sometimes explicit — pressure to generate value as quickly as possible and find the exit.

For high-growth technology companies or businesses that need a push to make the leap, that model can work perfectly. For a Spanish middle-market family business generating 30 million in revenue, with 150 employees, that needs a professionalisation and succession process taking five to eight years, the clock is a problem.

The asymmetry of interests

In a traditional fund, the manager’s interests are not always perfectly aligned with those of the portfolio company. The manager needs to demonstrate results to their LPs. They need to raise the next fund. They need to build a track record. These pressures can lead to decisions that maximise short-term value — debt loading, aggressive cost cutting, premature sale — at the expense of long-term value.

I am not saying all funds act this way. I know private equity managers who are extraordinarily responsible with their portfolio companies. But the incentive structure creates a tension that is inherent to the model.

In a family office operating with its own capital, that tension disappears. We have no LPs to whom we report quarterly results. We do not need to raise the next fund. We do not need to divest by a specific date to meet a contractual deadline. We can make decisions thinking exclusively about what is best for the company in the long term.

What patient capital can offer

The difference is not just about timelines. It is about approach. A patient investor can offer:

Indefinite horizon. We do not work with divestment deadlines. If a company is growing and creating value, there is no reason to sell it. We can hold a stake for five, ten, or twenty years if it makes sense.

Structural flexibility. We do not need to close deals that fit the parameters of a fund. We can do minority, majority, or mixed deals. We can invest in equity, debt, or hybrid instruments. We adapt the structure to the company, not the other way around.

Lower leverage. We do not need to multiply returns with debt. This allows us to invest in companies that could not support the typical debt structure of a leveraged buyout, and gives them more room to manoeuvre in difficult economic environments.

Operational decisions without time pressure. Professionalising a family business does not happen in twelve months. Expanding into new markets requires time to build relationships and reputation. Digital transformation is a continuous process, not a project with an end date. With patient capital, we can approach all of this at the appropriate pace.

Which companies benefit most

Patient capital is not for everyone. The companies that benefit most from this model share certain characteristics:

Family businesses undergoing succession, where the founder needs a partner that respects the process timelines. Companies with solid competitive positions that need management professionalisation. Profitable businesses operating below their potential due to lack of investment or strategic vision. Sectors where consolidation creates value but requires time and patience to execute.

Conversely, it is not the right model for companies needing venture capital with high failure tolerance, nor for aggressive restructuring operations, nor for sectors where speed of execution is more important than consistency.

Complementarity, not rivalry

I want to be clear: I am not presenting this as a critique of private equity. The market needs a diversity of models. There are companies that fit perfectly within a three-to-five-year fund, and there are companies that need a different horizon. The problem is not private equity — the problem is that many middle-market entrepreneurs believe it is their only option.

At Blue Mountain we have spent over fifteen years demonstrating that an alternative exists. Over one hundred and fifty companies, five sectors, and the conviction that the best returns come when capital has the patience to wait for value to materialise.

It is not a perfect model. It requires more discipline, because there is no clock forcing you to act. It requires more conviction, because there is no external investment committee validating your decisions. But for the right companies and the right entrepreneurs, it is the difference between a transaction and a transformation.

Dirk Manuel Martens Jimenez Founder, Blue Mountain Capital