Navigating the Nuances of Continuation Vehicles (Baird)

Summary

• Baird commissioned H/Advisors Cicero to conduct 60 in-depth interviews with general partners (GPs), limited partners (LPs), and secondary buyers regarding continuation vehicles.p.5
• Extending the hold period for prized or trophy assets was cited by 62% of surveyed GPs as the single greatest factor motivating a continuation vehicle transaction.p.10
• For single-asset continuation vehicles, over 90% of secondary buyers target underwritten net returns above 2.0x MOIC and 20.0% IRR.p.13
• A full 100% roll of crystallized GP economics occurred in 91% of recent continuation vehicle transactions surveyed over the past 24 months.p.15
• Over the 2020–2023 period, the GP-led secondaries market generated an aggregate deal volume of ~$210 billion, representing an ~18% CAGR.p.34
• Secondary market dry powder reached an estimated $191 billion, supporting projections for global GP-led volume to reach $175 billion by 2030.p.35
• Continuation vehicle transactions under $1 billion comprised roughly 60% of total deal volume in 2023, up from 39% in 2022.p.36

Key insights

1. A competitive, advisor-driven secondary auction process is considered essential by LPs and buyers to cleanse implicit GP conflicts of interest.p.11
2. Buyer expectations for alignment frequently include a 100% rollover of crystallized GP economics as well as new cash or flagship fund commitments.p.15
3. Nearly 70% of secondary buyers report that participating in a GP-led transaction increases the likelihood of committing primary capital to a sponsor's future fund.p.18
4. Adequate advance notice and clear communication during the election period are critical for LPs managing multiple simultaneous CV election processes.p.20
5. Survey data shows 55% of buyers view current LP reported Net Asset Values (NAVs) as slightly overvalued relative to fair value, down from 65% twelve months prior.p.26
6. Executing a continuation vehicle requires significant resources, with over 70% of sponsors stating it requires more operational effort than a traditional IPO or M&A exit.p.28
7. Transaction execution timelines frequently exceed expectations, with 70% of GPs citing delays driven by LP decision periods, market conditions, and process preparation.p.29
8. Approximately 76% of top 100 PEI sponsors have launched or closed at least one continuation vehicle transaction.p.35