By Oliver Thilo
24 Mar 2026
This article explores the long-term hold (‘LTH’) search fund model as an alternative approach to the traditional search fund framework. It outlines the key differences between the two approaches, examines the market dynamics driving longer-duration ownership, and evaluates the benefits and trade-offs for both searchers and investors, as well as the conditions required for the model to succeed.
Increased market volatility and geopolitical uncertainty, combined with higher debt servicing costs, have led to compressed valuation multiples and constrained exit markets which has reduced the appeal of exiting investments. In response, many private equity firms and searchers have extended holding periods and developed new fund structures to retain ownership until market conditions stabilise.
Continuation funds have emerged as a creative solution to the structural constraints of the traditional private equity model. These vehicles allow fund sponsors to retain ownership of portfolio companies beyond the customary ten-year fund life. This approach enables general partners (‘GPs’) to buy out existing limited partners (‘LPs’) and roll up the remaining equity into the continuation fund, affording the GPs more time to continue compounding value in high-quality assets that have not yet reached their full potential. The use of continuation funds has increased significantly in recent years, with launches rising from just five vehicles in 2018 to over 130 in 2024.
This shift reflects a growing recognition that meaningful value creation does not always align with fixed-horizon exit timelines. Against this backdrop, if continuation funds represent an adaptation of the traditional private equity model, an important question emerges: what is the analogous shift within the search fund framework? The answer: the LTH approach.
The traditional search fund model closely mirrors the private equity approach in its ownership horizon and exit expectations. Searchers typically raise capital to acquire and operate a single small-to-medium-sized business, with the intention of growing the company over a defined period (usually seven to 10 years) before pursuing a liquidity event. The liquidity event may take the form of a sale to a private equity firm, strategic buyer, or less frequently, a recapitalisation. As with private equity funds, this time-bound structure aligns investor returns with a planned realisation of value, incentivising operational improvements and growth initiatives that can be executed within a fixed ownership window. However, it also embeds an assumption that optimal value creation coincides with a predetermined exit timeline, regardless of broader market conditions or the long-term potential of the underlying business.
The LTH search fund is built around an extended ownership horizon of 10-20 years, distinguishing it from the traditional search fund model which optimises for a defined exit window. Value creation is driven primarily through disciplined inorganic growth, with the platform scaling over time by reinvesting free cash flows and deploying debt to finance acquisitions rather than incremental equity contributions. The model requires commitment to a narrowly defined sector characterised by enduring demand, strong customer retention and structurally attractive economics, with the initial acquisition serving as a foundation rather than a terminal asset.
LTH search funds are typically capitalised with a larger pool of committed equity than traditional search funds, often in the range of £10-20 million. This capital is pledged at launch but deployed selectively over an extended period, commonly four to six years. Initial equity capital is called to fund the search process, generally in amounts comparable to those seen in traditional search funds.
There are two primary structural approaches within the LTH model:
As the platform matures, the entrepreneur’s role evolves. In the early years, success depends on strong operational execution within the initial business or businesses. However, over time the focus shifts increasingly toward capital allocation: evaluating acquisition opportunities, optimising reinvestment of cash flows, and managing leverage across the group.
LTH incentive structures are designed to reinforce long-term alignment, with equity vesting substantially back-ended and tied to performance-based milestones. Vesting hurdles are linked to MOIC rather than IRR, reflecting the emphasis on maximising absolute value created over the life of the investment rather than optimising the timing of returns. This supports a ‘go slow early, go fast later’ approach, rewarding searchers who deliver strong long-term outcomes while offering less protection where performance is average or returns are realised over shorter time horizons.
A core advantage of the LTH model is its reduced sensitivity to economic cycles. Without a fixed exit requirement, capital is deployed into a structure where realisation is driven by intrinsic value rather than market timing. This gives investors the flexibility to avoid forced sales during periods of compressed multiples or macro headwinds.
The extended horizon also enhances compounding potential. Cash flows can be reinvested systematically into organic initiatives or follow-on acquisitions, allowing returns to accrue through repeated reinvestment rather than a single liquidity event. This dynamic can materially increase absolute value creation over time.
Finally, the model improves incentive alignment. By tying compensation to net multiples of invested capital rather than IRR the emphasis shifts from exit optimisation toward sustained value creation. This encourages decisions that prioritise durable growth and prudent capital allocation over short-term financial engineering.
The LTH model also introduces distinct trade-offs. Most notably, extended holding periods mean capital may be tied up significantly longer than in traditional search funds, creating liquidity constraints for investors with return timing requirements and increasing reliance on secondary transactions that may occur at a discount to intrinsic value.
The model also amplifies dependence on operator quality. With value creation unfolding over decades, outcomes are tightly linked to the entrepreneur’s ability to evolve into an effective long-term capital allocator. Key person risk is therefore heightened, as leadership transitions, burnout or misaligned incentives can have an outsized effect on performance.
For searchers the model presents its own trade-offs. Incentive structures in LTH vehicles are typically more back-ended, with greater reliance on long-term performance hurdles and lower near-term compensation. Wealth creation may therefore lag relative to traditional search funds, particularly where value creation is steady but not exceptional.
The model also demands a broader and evolving skill set. Searchers must succeed first as hands-on operators before transitioning into capital allocators overseeing multiple entities. Not all entrepreneurs are equally suited to this shift, and missteps in capital allocation or acquisition discipline can compound over time.
Career concentration risk is a further consideration. LTH search funds involve a deep multi-decade commitment to a single platform and industry thesis, limiting optionality relative to traditional search funds where a successful exit can reset a searcher’s career trajectory. If the platform underperforms or the thesis deteriorates, pivoting carries significant personal and professional cost.
LTH search funds offer a compelling alternative to traditional models by embracing longer ownership horizons and patient value creation. In an environment of market volatility and constrained exits, they prioritise compounding, reinvestment and disciplined capital allocation over fixed timelines.
This approach can improve investor alignment, reduce sensitivity to market cycles, and enable searchers to build businesses for the long term. However, it is not universally suitable and success depends on selecting resilient industries, partnering with patient capital, and accepting trade-offs such as lower liquidity and delayed returns.
LTH search funds are best seen not as a replacement for the traditional model, but as a complementary approach suited to certain investors and searchers. If you have any questions or would like to learn more, please get in touch with one of our experts.
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