Continuation vehicle funds are at the center of the exit dilemma, with many private equity firms now participating in secondaries vehicle for portfolio companies than in recent years.
Both single-asset and multi-asset continuation vehicles are now utilized by 42 percent of private equity firms, according to a new report by MCAM Group, a placement agent to PE firms.
Continuation vehicles now represent $60 billion in total assets, or just 1.5 percent of the $4.2 trillion of assets under management held by PE firms.
But it's worth noting that 32 percent of continuation vehicles now hold multiple assets, suggesting a larger representation among portfolio companies, MCAM notes.
The IPO market, which has been sluggish since 2021, has significantly reduced the exit opportunities for some PE funds. Many firms are using continuation funds to wait out this slump before putting assets on the market.
MCAM says that while a weaker exit market via M&A or IPO has been the main driver of the rise in continuation funds, such vehicles are a natural evolution of the PE industry to become longer-term investors in companies.
"LPs have historically been reluctant to invest in continuation funds - that has now changed as PE firms have proven that they can build and realize additional value in certain assets held for longer," said Lars Bjoergerd, managing director of MCAM.
As part of PE Hub's ongoing coverage of companies for sale, strategic reviews of PE-backed companies have often concluded with a continuation funding arrangement rather than a traditional buyout, sources have told me.
SCI Capital Partners-backed ice distributor Reddy Ice was one such company that went up for sale in 2024 only to be dropped into a $1.6 billion CV backed by Apollo among others.