permanent-capital-index

Text from GitHub, as it stood on 2026-11-04. Source: https://github.com/SimonKreis/permanent-capital-index/blob/HEAD/whitepaper/pci-whitepaper.md

Updated June 2026.

Dedication

I’d like to dedicate this paper to Warren Buffett and Berkshire Hathaway, without whom the inspiration for this idea would never have been possible.

“Be fearful when others are greedy and greedy when others are fearful.”

— Warren Buffett

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1. Executive Summary

Traditional market indices dominate global investing today, but they suffer from structural weaknesses: excessive concentration, higher correlations, and vulnerability to sector bubbles.

The Permanent Capital Index™ (PCI) proposes an elegant alternative: an index built from Permanent Capital Vehicles (PCVs) — companies that allocate capital with an unlimited horizon. By combining natural diversification, disciplined capital allocation, and resilience, these organizations have compounded value across decades and crises.

Two commitments set the PCI apart from the crowded field of “smart-beta” benchmarks. First, constituents are selected by structure, never by past performance — a discipline that, as we explain in Section 4, is the difference between a real finding and a circular one. Second, the index is measured honestly: its backtest is reported with its biases disclosed, and it makes no claim to a spectacular edge it does not have. The result is sober and, we think, more credible for it: over 2010–2026 the PCI compounded at 12.9% per year in USD total return — a touch ahead of the MSCI World (12.2%), behind the US-mega-cap-led S&P 500 (14.1%) — while collapsing US concentration from over 60% of a world index to about 28%. MSCI World (URTH proxy) data begins 2012-01-13; its figures cover 2012–2026, not 2010–2026.

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2. Background and Problem

Over the past two decades, passive investing has transformed global markets. Vanguard, BlackRock, and State Street now manage trillions of dollars through index-tracking ETFs, making them the default choice for millions of investors.

For younger generations especially, index funds are not only the gold standard but the default investment product. And this momentum is projected to keep growing.

Despite the success of index investing — which historically has outperformed the average active manager — structural weaknesses are becoming increasingly apparent. Most stem from a single design choice: market-cap weighting, where the largest companies dominate the index by sheer size.

ETF providers have already introduced Smart Beta products to mitigate some of these risks (e.g. equal-weight indices). But the vulnerabilities remain.

Some are visible and well-documented. Others are still theoretical, but gaining traction among contrarian investors such as Michael Burry. Together, they represent a structural fragility that investors cannot ignore.

Risk 1: Concentration

What was once the promise of indices — extreme diversification — is no longer true. Today, a handful of U.S. mega-cap tech companies represent more than 25% of the S&P 500. A downturn in one sector can ripple through the global financial system.

Risk 2: Market Distortion

As more retail and institutional investors pour mechanically into cap-weighted funds, there is a growing concern around the erosion of price discovery. If left unchecked, this could distort valuations and amplify bubbles — a view articulated most famously by Michael Burry.

What investors are actually looking for

Investors — and especially the community of value-driven investors — are increasingly searching for alternatives to market-cap weighted indices. The demand stems from a recognition that while passive indices were once a breakthrough in diversification, today they have become heavily skewed and structurally fragile. Three priorities stand out:

Genuine diversification — away from the United States, which now represents over 60% of the global investable stock market, and away from a single sector, U.S. technology, which alone accounts for more than 25% of the S&P 500.

From the depths of the 2008 financial crisis, equity markets entered a prolonged uptrend that many label the longest secular bull regime in modern history. But this journey has not been linear — intervening corrections, volatility spikes, and macro shifts have challenged passive strategies. The persistence of that bull regime, however, underscores the need for an index that is not simply a cap-weighted ride upward, but one that can survive the valleys and compound through cycles.

Resilience through cycles — after the long post-2009 bull market, investors are keenly aware that downturns expose the weaknesses of cap-weighted portfolios. True resilience requires managers — or vehicles — that can reallocate across cycles rather than remain static.

Sustained long-term returns — the ultimate goal remains compounding wealth over decades. Investors increasingly see the need for benchmarks that reflect not just market momentum, but disciplined capital allocation with proven staying power.

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3. The Concept of Permanent Capital

Well before the rise of index ETFs, another model already existed: the Permanent Capital Vehicle (PCV).

Unlike a “pure play” company anchored to a single sector, PCVs are structurally diversified, agile, and designed for resilience. They are not tied to one industry cycle; they are built to allocate capital wherever opportunities arise.

The idea is older than it looks. When the Dutch East India Company raised capital that its shareholders could not simply withdraw at will in 1602, it created one of the first enterprises able to commit to ventures across decades rather than single voyages — and, not by coincidence, one of history’s great compounding engines. Permanent capital has resurfaced in every era since, wherever a structure let patient owners hold through the cycle instead of being forced out at the bottom of it. The modern names are new; the structural advantage is centuries old.

The most emblematic contemporary example is Berkshire Hathaway. Buffett and Munger transformed a textile mill into a diversified compounding machine spanning insurance, utilities, industrials, and equity stakes.

But Berkshire is not unique. Across the world, other organizations share the same DNA:

• Fairfax Financial and Brookfield in Canada,
• Investor AB and Industrivärden in Sweden,
• Washington H. Soul Pattinson in Australia,
• Exor, Sofina, Brederode, and Ackermans & van Haaren in the Benelux and Italy,
• Markel Group and White Mountains Insurance Group in the U.S.,
• the Japanese sōgō shōsha (Mitsui, Mitsubishi, Itochu, Marubeni, Sumitomo),
• and many others.

These companies share key traits:

• Indefinite horizon: no pressure to liquidate; investments can compound indefinitely.
• Capital allocation flexibility: freedom to deploy resources across sectors, assets, geographies, and market cycles.
• Governance alignment: families, founders, or long-term stewards ensure continuity of philosophy and decision-making.
• Long records of resilience: these organizations have compounded value across multiple decades and crises.
• Scale advantage at earlier stages: many mid-sized PCVs still operate at a scale where they can access local, under-researched, and inefficient markets. This echoes Berkshire Hathaway’s early years, when smaller, more agile investments drove outsized performance.
• Cultural alignment with value investing: almost all share a philosophy inspired by Benjamin Graham’s and Warren Buffett’s principles — intrinsic value, patience, and discipline rather than market momentum.

Yet despite this heritage, PCVs remain largely invisible to the public. Most investors know Buffett, but few have heard of Soul Pattinson, Sofina, or Sabvest — despite their long track records. This paper argues that PCVs represent not only an overlooked category of companies, but also a new foundation for index investing — provided we are honest about how we define them and how we measure them.

A behavioral category, not a legal form

The PCI is designed to capture a behavioral and strategic category of companies, not a narrow legal form. Some constituents are “pure” allocators — entities whose sole business is deploying capital across sectors and geographies. Others are “hybrid” allocators — companies that combine a dominant operating platform with a proven permanent-capital approach.

At first glance these groups look structurally different. In practice they share the same DNA: an indefinite horizon with no redemption obligation; governance alignment through insider or foundation ownership; capital-allocation discipline funded by retained earnings, float, or structural leverage; and resilience demonstrated across crises and regimes.

Indeed, some of the most celebrated PCVs blur the line. Berkshire Hathaway itself began as a hybrid — anchored in textiles before pivoting into insurance float and diversified allocation. Brookfield mixes asset management with balance-sheet investing in real assets. Soul Pattinson evolved from a pharmacy and tobacco operator into one of the world’s longest-running family-controlled allocators. The Japanese sōgō shōsha exemplify the same hybrid nature: trading houses with deep operating platforms that continuously reallocate capital. For the PCI, what unites them is not their corporate taxonomy but their structure — and, for disclosure only, each constituent is tagged by capital source (A or B/C; see the methodology).

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4. The decisive design choice: selected by structure, not by returns

Here is the discipline that separates the PCI from benchmarks built by picking past winners.

It is tempting to define “great allocators” as “the ones that compounded the fastest,” draw up a list of the famous winners, and present their combined track record as proof. That definition is self-refuting for an index: if membership requires having outperformed, the index cannot then be used as evidence that the category outperforms — the conclusion has been smuggled into the premise. It is the statistical equivalent of proving that lottery tickets make people rich by interviewing only the jackpot winners. Worse, every backtest such an index produces is contaminated by look-ahead and survivorship bias, because you only ever pick the names that, with hindsight, you already know survived and won.

The PCI therefore refuses to select on performance. Membership is decided by a single, uniform, mechanical rule applied to a company’s structure — the shape of its balance sheet, its corporate form, its size — and to nothing about its past returns. Performance is then measured strictly as an output, and reported with its biases disclosed. If the permanent-capital category has a genuine edge, a structurally selected index will reveal it without curation. If it does not, that too is an honest and publishable finding. Either way, nobody gets to choose the winners after the fact.

This is not a minor methodological footnote. It is the reason the modest 12.9% in Section 8 is worth more than the “indecent” 20% that the legend of Berkshire and the sōgō shōsha might lead you to expect.

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5. Why the category should have an edge

If we are not allowed to point at past returns, why expect permanent capital allocators to do well at all? Two structural properties — and only two — are the hypothesized source of any durable advantage. The methodology is built to measure exactly these.

Permanence of capital → no forced selling. The deepest disadvantage of most pooled capital is that it can be withdrawn. Open-end funds face redemptions; closed-end and LP vehicles face finite lives and gates; ordinary companies face refinancing walls. Withdrawal risk forces selling into weakness — exactly when an allocator should be buying. A permanent capital vehicle is funded by capital that cannot be redeemed: permanent equity, retained earnings, or insurance float. This is the structural precondition that turns Buffett’s most-quoted line — be greedy when others are fearful — from a slogan into something operationally possible. The edge is not cleverness; it is the absence of a handicap that afflicts almost everyone else.

Owner alignment → low agency cost. Concentrated, long-tenured ownership — a founding family, a foundation, a controlling holding company, a long-serving owner-operator — aligns the decision-maker’s horizon with multi-decade compounding rather than quarterly optics or fee maximization. Skin in the game replaces career risk as the dominant incentive. It is no accident that so many of the category’s exemplars are family- or foundation-controlled: the structure selects for patience.

Diversified allocation is the activity that defines the category; permanence and alignment are the edge.

The archetypes

The phenomenon takes a handful of structural forms around the world. The index spans them deliberately — and, crucially, the mechanical rule decides membership, not the names in this list:

Float allocators. Insurers that deploy float into ownership — Berkshire, Fairfax, Markel. Premiums collected today and paid out years later are, in effect, a loan from policyholders carrying a negative interest rate whenever underwriting runs at a profit — the kind of capital GEICO and Gen Re have handed Berkshire for decades. What qualifies such a company is not earning premiums but allocating that float into equities and whole businesses. Large life or diversified insurers that simply match liabilities with bonds are a different animal; the index does not hand-exclude them, and many pass the allocation test anyway (see the over-inclusion caveat in Section 8).

Portfolio-manager allocators. Firms that invest their own permanent balance-sheet capital into real assets and businesses, not merely collect fees on other people’s money — Brookfield being the exemplar.

Industrial aggregators. The Japanese sōgō shōsha (Mitsubishi, Mitsui, Itochu, Marubeni, Sumitomo). Post-war, these were pure trading intermediaries; over sixty years they accumulated equity stakes in resources, infrastructure, and operating companies across every continent, turning their trading network into an information engine that feeds capital allocation — structurally analogous to how Berkshire’s insurance operations feed its. Excluding them would be a Western-centric bias: where the zaibatsu were dismantled and family holding companies never formed, the sōgō shōsha is Japan’s permanent capital vehicle, funded by bank relationships rather than float because Japanese capital markets developed differently.

Family / permanent holdings. Publicly traded corporations whose business is owning diversified stakes, funded by patient family or foundation capital — Investor AB (the Wallenberg sphere), Industrivärden, Exor, Sofina, and dozens of lesser-known names worldwide. The Wallenberg case is instructive: the family’s core stakes sit inside foundations whose mandate is to hold rather than to flip, and which have stewarded many of the same companies for more than a century. That is alignment made structural — an owner whose horizon is measured in generations, not quarters.

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6. The Proposal: how a constituent is chosen

The PCI applies one uniform mechanical rule to every candidate — no per-name judgment, no manual selection, no special case for insurers. A company is included if it passes all of the following, each computable from public data (full detail in the methodology):

• Permanence & durability — an operating corporation (not a fund, ETF, BDC, SPAC, or finite-life vehicle), continuously listed at least 3 years.
• Allocation signature — investment-type assets (equity stakes, equity-method associates and JVs, long-term investments, and for insurers the investment portfolio) are at least 30% of total assets, and property, plant & equipment is at most 33% — the balance sheet of an owner of companies, not a runner of factories.
• Investability — market capitalization at least USD 250M.

There is no performance gate. Owner alignment and fine-grained diversification belong to the concept but are carried as disclosed attributes rather than automated filters, because free data reports ownership unreliably (public sources show Investor AB’s insiders at ~0.3% when the Wallenberg sphere controls ~50% of the votes).

Construction: equal-weighted (1/N), total return, USD, with semi-annual reconstitution. The index is deliberately uncapped — every name that passes is included. The current universe holds 147 constituents across 26 countries.

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7. The Philosophical Case for Equal Weighting

Traditional indices are dominated by a handful of mega-cap companies. The S&P 500, MSCI World, and FTSE All-World each carry a structural US-tech bias, with the top five stocks often representing more than 20–25% of total weight. This undermines the very promise of diversification and ties performance to a narrow set of companies.

The PCI rejects this logic. Equal-weighting was chosen because it is:

• Philosophically consistent — each PCV that passes the structural rule is one expression of the same permanent-capital DNA. Treating them equally reflects that shared nature.
• Contrarian by design — equal weight de-emphasizes the United States and mega-cap dominance, giving visibility to underrepresented regions and family-controlled vehicles with exceptional records.
• Historically grounded — equal-weight construction reduces concentration risk and the single-name fragility of cap weighting.
• Investor aligned — it speaks to investors seeking antifragility, value discipline, and genuine global diversification.

By giving every Permanent Capital Vehicle an equal seat at the table, the PCI becomes not just another index, but a statement: resilience and stewardship matter more than size.

Worked example: the geographic effect

Equal-weighting 147 constituents produces a radically different geographic profile from a cap-weighted world index:

Region	Constituents	Weight
North America	61	41%
Europe	43	29%
Asia-Pacific	30	20%
Emerging	13	9%

• United States dominance collapses — instead of over 60% in MSCI World, the US accounts for about 28%.
• Europe and emerging markets are elevated — family-controlled and long-lived allocators across Scandinavia, the Benelux, France, and the emerging world gain real visibility.
• Asia-Pacific is balanced — Japan’s trading houses sit equally weighted alongside Soul Pattinson and the Korean and Hong Kong holdings.
• No single stock dominates — every constituent receives the same weight, whether Berkshire Hathaway or Sabvest Capital.

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8. Results — honest, not flattering

Backtest 2010–2026, total return, USD (147 current constituents, held fixed historically; 145 of them priced — two have since been acquired or renamed, see the caveats below):

	CAGR	Max Drawdown	Volatility	Sharpe
PCI	12.9%	−36.1%	16.9%	0.68
S&P 500 (Total Return)	14.1%	−31.7%	16.2%	0.77
MSCI World (Total Return)	12.2%	−32.7%	15.7%	0.68

_{MSCI World (URTH proxy) data begins 2012-01-13; its figures cover 2012–2026, not 2010–2026.}

The PCI lands between the two benchmarks — ahead of the MSCI World, behind the US-mega-cap-led S&P 500 — at comparable risk. It is not a claim of alpha, and that is the point.

A reality check on the legend

It is worth confronting the expectation head-on. Surely a portfolio of Berkshire, Fairfax, Markel, Investor AB and the great sōgō shōsha should compound at something “indecent” — 18%, 20% a year? Measured honestly over 2010–2026, an equal-weight basket of exactly those six famous names returned 14.9% per year. The individual records are more humbling still: Berkshire 12.9%, Fairfax 11.3%, Markel 10.8%, Mitsubishi 11.1%, Investor AB 17.1%, Itochu 16.5%. Not one of them did 20%. The legend draws on Berkshire’s lifetime figure (earned mostly in earlier decades; the modern Berkshire compounds in the low teens), on recency bias toward the post-2020 surge in the trading houses, and on survivorship — remembering only the winners.

So the honest comparison is not “12.9% versus an indecent 20%.” It is “12.9% for a transparent, reproducible 147-name index versus 14.9% for a hand-picked basket of six superstars.” The index is essentially the dream, minus the cherry-picking — and roughly the return of global equities, with a genuinely different and more diversified composition.

Honesty caveats (not hidden)

1. Survivorship. The constituent list is the current structurally-selected set; companies that delisted or failed are absent from free data, biasing the historical figure upward. The true number is likely somewhat lower — so the fair reading is “roughly matches global equities,” not “beats them.”
2. Free-data limits. A balance-sheet rule misses some genuine vehicles that fully consolidate their holdings (Ackermans & van Haaren, HAL Trust, Power Corp), and over-includes some investment-heavy insurers. These are disclosed, never patched by hand.
3. No tuning. The one selection variable that could be “tuned” — the 30% allocation threshold — was tested and, tellingly, tightening it lowers return (see the methodology’s robustness table). The inclusive setting is not chosen to flatter the backtest.

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9. Advantages and Applications

The PCI blends the intelligence and opportunity-seeking nature of active investing with the simplicity and efficient capital distribution of passive vehicles:

• Diversification — every constituent is itself diversified, and the index spans 26 countries.
• Resilience — permanent capital allocators are built to reallocate through downturns rather than be forced to sell into them.
• Alignment — family, founder, and foundation governance keeps the orientation long-term.
• Transparency — the methodology and code are open; anyone can reproduce the constituent list from public data.

In principle, the PCI could serve as a reference benchmark for the permanent-capital category, including for institutions studying alternatives to cap-weighted indices, and as the basis for index products licensed from the Index Sponsor. This paper is research and does not recommend any investment.

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10. Conclusion

The Permanent Capital Index™ combines the rigor of value investing with the accessibility of index investing. It addresses the fragility of traditional benchmarks and offers a new reference point built on resilience and long-term stewardship — and it does so without the circular reasoning and survivorship games that inflate most “smart-beta” backtests.

By giving visibility to Permanent Capital Vehicles — an overlooked but long-established class of organizations — and by measuring them honestly, the PCI represents a new, transparent benchmark designed to endure. Its contribution is not a promise of spectacular returns. It is a reproducible, structurally defined, openly specified benchmark of a real category — and the intellectual honesty to report exactly what that category is worth. In a field crowded with backtests engineered to dazzle, that honesty may be its most useful edge.

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Appendix A — Representative constituents

The full, reproducible list of 147 constituents across 26 countries is in data/pci_constituents_v4.csv. A representative sample:

Company	Ticker	Country	Tag
White Mountains Insurance Group, Ltd.	WTM	Bermuda	A
Fairfax Financial Holdings Limited	FFH.TO	Canada	A
Berkshire Hathaway Inc.	BRK-B	United States	A
Cincinnati Financial Corporation	CINF	United States	A
Loews Corporation	L	United States	A
Markel Group Inc.	MKL	United States	A
WHSP Holdings Limited	SOL.AX	Australia	B/C
Sofina Société Anonyme	SOF.BR	Belgium	B/C
Fairfax India Holdings Corporation	FIH-U.TO	Canada	B/C
Bolloré SE	BOL.PA	France	B/C
Peugeot Invest Société anonyme	PEUG.PA	France	B/C
Eurazeo SE	RF.PA	France	B/C
Tikehau Capital	TKO.PA	France	B/C
Porsche Automobil Holding SE	PAH3.DE	Germany	B/C
Bajaj Holdings & Investment Limited	BAJAJHLDNG.NS	India	B/C
Tata Investment Corporation Limited	TATAINVEST.NS	India	B/C
ITOCHU Corporation	8001.T	Japan	B/C
Mitsui & Co., Ltd.	8031.T	Japan	B/C
Mitsubishi Corporation	8058.T	Japan	B/C
Brederode SA	BREB.BR	Luxembourg	B/C
Exor N.V.	EXO.AS	Netherlands	B/C
Prosus N.V.	PRX.AS	Netherlands	B/C
Aker ASA	AKER.OL	Norway	B/C
Naspers Limited	NPN.JO	South Africa	B/C
Sabvest Capital Limited	SBP.JO	South Africa	B/C
Samsung C&T Corporation	028260.KS	South Korea	B/C
AB Industrivärden (publ)	INDU-A.ST	Sweden	B/C
Investor AB (publ)	INVE-B.ST	Sweden	B/C
Kinnevik AB	KINV-A.ST	Sweden	B/C
3i Group Ord	III.L	United Kingdom	B/C

Regional distribution (147 constituents)

Region	Constituents	Weight
North America	61	41%
Europe	43	29%
Asia-Pacific	30	20%
Emerging	13	9%

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Appendix B — Methodology at a glance

Element	Specification
Selection	Structural, mechanical, no performance gate
Permanence	Operating corporation (not fund/ETF/BDC/SPAC), listed ≥ 3 years
Allocation signature	Investment-type assets ≥ 30% of assets; PP&E ≤ 33%
Investability	Market cap ≥ USD 250M
Weighting	Equal weight (1/N), uncapped
Reconstitution	Semi-annual (June 30 / December 31)
Currency / return	USD, total return
Benchmarks	S&P 500 TR, MSCI World TR (URTH)

Full text: PCI Methodology · Theoretical Framework.

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Permanent Capital Index™ — Whitepaper, updated June 2026. Documentation licensed CC BY 4.0; “Permanent Capital Index” and “PCI” are trademarks (see LICENSE). Not investment advice; backtested figures are subject to the limitations documented in the methodology and are not indicative of future results.