Europe a ‘wild west’ when it comes to running continuation fund processes

While North America has coalesced around a common process, some transactions in Europe are subject to different time frames and varying access to information, attendees at the BVCA Summit were told.

Europe is like the “wild west” when it comes to the way continuation fund processes are run, a conference has heard.

In North America, the running of a continuation fund has “coalesced around a common time frame, a common set of documents, a common format for documents”, Debevoise & Plimpton funds partner John Rife told delegates at the BVCA Summit last week.

“From my perspective it makes it easier for an LP receiving documents to know I’m going to have 28 federal business days to review the transaction documents, I know that they’re going to be set up in this way, I’m going to get these documents and have access to this universe of information in the data room,” Rife added.

Some transactions are done “very well” in Europe, while others are outliers. Giving examples, Rife said he had come across transactions where there has been tension between local counsel and international advisers about who will run the process.

Rife said that in some scenarios he had sympathy from the LPs’ perspective, adding that investors think: “’gee, I don’t have enough time, I’ve never seen a transaction set up like this, I’ve never seen documents that look like this, and I have 10 days to [make a decision]’.”

Stephanie Mata, managing director of investor relations at Three Hills Capital Partners, said she had heard grumbles from LPs on whether they had the time and bandwidth to process continuation fund transactions as single-asset transactions have burst onto the scene.

She added it “feels a little bit like when the market started with the co-invests and the directs, where certain LPs were also complaining about not having the time or the team and the resources to enter that market and boost their returns”.

“Maybe it’s just a matter of fact and it will evolve towards that trend [where] LPs would just need to get used to it.”

Education or regulation

Private equity and secondaries players need to recognise that continuation funds are complex transactions that “on their face do look as though you are selling to yourself if you don’t understand the intricacies of the fund structures”, Chris Bulger, general counsel for Vitruvian Partners told attendees.

Clarification is needed as currently “everything… is getting bundled together”: secondary buyouts and cross trades where you may have an asset marketed, a third-party GP invests and the existing sponsor uses their new fund to invest, Bulger said.

“Ninety-nine percent of the time they are not a continuation fund, they’re a completely different transaction, but it gets bundled together” with a classic continuation fund transaction, which made be done for a single asset or multiple assets.