Capital with an expiration date

When we founded Shellment we took on a commitment to financial education, and a fundamental part of that is questioning those truths considered universal, when in reality they merely reflect the way we have accepted the financial world to behave.

Consider this case, as hypothetical as it is plausible: imagine a retail space on a shopping street in Madrid. It has been leased for years to an operator who pays punctually, under a long-term contract with a rent that is updated every January. It is the kind of asset one would want to hold in the portfolio forever, but suddenly its owner, a real estate fund our protagonist holds a stake in, sends a notice: the vehicle is entering its divestment period and the asset will be put up for sale in the coming months.

There is nothing wrong with the space. Nothing wrong with the investment. It is the calendar that creates a problem for us.

That property is being sold exclusively because the vehicle that bought it is reaching the end of its term. And that sentence, spoken in the industry without blinking, hides a question almost nobody asks: who decided that the money buying real estate has to leave in ten years?

A closed-end fund typically works like this: for two or three years it invests the capital committed by its participants, according to the thesis and other more or less malleable promises made during the fundraising. For another four or five years it manages it, and over the final two or three years it sells the assets, returns the money and dissolves. A term of seven to ten years at most, with one or two extensions if the market does not cooperate.

The participants, in turn, tend to be other vehicles —pension plans, insurers, funds of funds— that need those distributions to meet their own commitments. And those commitments do have a date: an insurer pays claims and a pension plan pays pensions when they are due, not when it suits them. The closed-end fund is designed for them, and for them the maturity makes perfect sense. The problem is that this same vehicle has become the standard way to invest in real estate also for those with no liability to match: the family, the saver, the patrimonial company. They have inherited a clock that belonged to someone else.

None of this is a flaw. Paraphrasing Stafford Beer: “there are no dysfunctional systems: all of them produce what they were designed to produce.”

A closed-end fund is a machine for buying and selling, not for holding, and it does its job well. What happens is that the incentives it produces are not those of people who want to keep their investment for the long term.

A fund is evaluated by its IRR —Internal Rate of Return, an objective measure of the financial return obtained—, by the multiple on invested capital and by how much money it has returned. Those three metrics only exist when assets are sold.

A patrimonial company, with a long-term vision, should be evaluated by the rent over cost and by how the asset’s value evolves over time. Even by questions not directly measurable in cold, objective figures, such as what it contributes to the thesis or its resilience in a crisis.

The metric dictates the conduct: if what is measured is what has been sold, things get sold.

That is why I find it hard to call the so-called patrimonial funds patrimonial, because before being patrimonial they are funds. In the end their performance is valued through gains that only become evident in a transaction, and that condemns them to rotations when the calendar dictates, not when the asset has stopped serving its purpose in the portfolio.

The maturity is not demanded by the asset, nor even by the final investor in many cases. It is demanded by the retribution chain we have all accepted.

The manager collects a modest management fee while holding the asset, and the bulk of its retribution —the carry, the fee on the expected excess return— only when it sells at a gain. The developer collects its promote —also a success-based fee— when the deal closes. The broker collects a percentage of the transaction, and the transaction is always the entire property. The advisor collects success fees, and success is the signature. Because when there is money on the table it is easier to find happy actors willing to set aside a percentage for the professionals involved. This way everyone gets paid on the sale; nobody gets paid for holding.

We say it is a convention because it is not the only way to organize a market and an investment advisory model. For example, the manager of an equity fund charges on the assets under management: the client can hold the same share for twenty years and the manager keeps charging, so its priority is that this investor keeps long-term confidence.

It is when you compare the equity model with the real estate one that you realize their differences are nothing but a convention. Some argue that the lower transaction cost of shares explains why they are different markets, with different incentive models. As if that transaction model had not adapted over time in the case of shares. Demand shapes the model as much as the model shapes demand.

And in real estate, nothing has been invested for decades in making transactions cheaper. After all, there are so few of them that it is not worth it. And because transferring is expensive, few transactions happen, feeding the vicious circle.

And so, at every rotation of a real estate asset, accumulated costs appear: transfer taxes, municipal capital gains tax, brokerage fees, due diligence, notary and registry. Depending on the asset and the region, each turn easily takes a high single-digit percentage of the property’s value. A family pays that toll once per generation; a fund pays it every seven years.

We deserve a system that does not require getting rid of a good asset just so the professionals can get paid.

But this we have discussed is the root of the problem, not the problem itself. When the manager cannot sell at the price it needs and the fund expires, it does something that ten years ago would have seemed outlandish: it creates a new vehicle that buys the asset from the old vehicle, with money from new investors. It is called a continuation vehicle, and it is the manager selling the asset to itself.

The secondaries market moved 121 billion dollars in the first half of 2026, a record, and for the first time in four years 54% of that volume was led by the managers themselves, not by participants wanting out. In real estate, secondaries reached 20.3 billion in 2025, with 72% led by the manager. Continuation vehicles were 14% of private equity fund exits in 2025; in 2021 they were 5%.

According to Jefferies, real estate portfolios of participants wanting out are bought secondhand at 70% of their net asset value. That 30% is, to a large extent, the price of being in a hurry to meet a calendar. A second figure: 74% of continuation vehicles are born with an initial five-year term, and 92% contemplate up to two extensions. The solution to maturity also has a maturity, and fees at every jump.

Someone will think the problem is the term and the solution is the open-ended fund, the one that lets you enter and exit whenever you want. The catch is that “whenever you want” is usually “whenever you can”. In October 2026 DWS limited redemptions in Grundbesitz Europa, one of the large open German real estate funds, and Swiss Life suspended those of Living and Working. The Bundesbank puts net outflows from that category at 7.6 billion euros in 2025. And here in Spain many will remember the Santander Banif Inmobiliario fund in 2009: the same movie, with a Spanish accent.

The problem is not the fund’s term. The problem is financing an illiquid asset with liabilities that have a clock, whether that clock is a maturity date or a redemption window. That is indeed a principle of physics, not a widely accepted convention.

The model has been this way for many decades, but there is a reason why this matters especially now. The bank lending survey the ECB published on October 27 records a further tightening of corporate lending criteria in the third quarter and a fall in credit demand due to rising rates.

The Bank of Spain confirms the same for Spain, and banks anticipate further tightening in the fourth quarter. With the deposit rate at 2.50% and the ECB acknowledging it debated raising it, banks finance a smaller share of the property and charge more for it. The gap it leaves is equity, and the traditional sources to cover it —the professional partner with a maturity, mezzanine debt— are precisely the ones that bring a clock.

The savings of many retail investors, turned into patient capital, are the source of equity that does not add a calendar to the asset. Not because the saver is more patient than a fund, but because their clock and the property’s walk separately: whoever wants out sells their stake to another investor, if there is one, and the property never finds out. The partner’s liquidity is not the asset’s liquidity. Keynes would have called it giving up the preference for liquidity: the saver lends time, which is exactly what traditional financiers are withdrawing.

Let us go back to the space on the shopping street. Imagine the same rent, same tenant, different letter. This one is signed by a minority partner writing to say they have sold their stake to another investor, that the company remains the same and that the space is right where it was. Like a shareholder who has sold their stake to someone else.

We force investments to have a maturity because that is how the industry gets paid, not because the asset demands it. Because brick never had an expiration date; it was the money that did.