From proof of concept to lasting record

The secondaries market is stepping up its monitoring of continuation fund performance as the battle for LP dollars intensifies.

New research from PJT Partners tracks the performance of a number of continuation fund exits, following on from the project it began last year. It shows five single-asset continuation funds have realised gross multiples of invested capital of between 1.8x and 3x to investors within those vehicles. A $500 million multi-asset continuation fund with an around three-year hold delivered an over-3x return, while a €250 million single-asset continuation fund with a similar hold period delivered a 4.5x return.

This follows Evercore’s recent study with the HEC School of Management in Paris, which showed single-asset continuation funds provide more consistency in returns than buyout funds and similar performance.

The report found single-asset continuation vehicles between the 2019-23 vintages achieved an average total value to paid-in ratio of 1.499x, closely aligned with the performance of 2019-vintage buyout funds, which generated an average TVPI of 1.513x. However, single-asset CVs have exhibited lower return dispersion than their buyout counterparts, indicating lower return variability.

This is not the first time we have written about continuation fund performance on Secondaries Investor and our affiliate titles. Late last year I penned a Friday Letter for Private Equity International showing continuation funds were just beginning to gain a track record, noting the few examples of public exits the market had to hand.

What has changed is that the secondaries market’s own efforts to publicly collate this information is making headway – presented in a way that’s digestible and easy to find for LPs as well as new entrants looking to benchmark returns.

When asked by Secondaries Investor’s Adam Le what would help unlock more capital on the buyside, particularly for large single-asset continuation fund transactions, Evercore’s Nigel Dawn told delegates at PEI Group’s Nexus conference last month new entrants will help, followed by crystalised performance – “having a benchmark which LPs don’t have right now”.

One helps the other – having crystalised returns will help this burgeoning new group of secondaries managers in the fundraising market, where GP-led strategies have proven to be more difficult to raise than market participants had anticipated.

PJT expects the GP-led market will grow to reach $101 billion in 2028, with single-asset continuation funds making up just over half of that figure, according to its report.

Secondaries Investor is keeping a list of potential continuation funds that could exit in the near future. Converting those into stories doesn’t only create interesting headlines for our readership. It’s also crucial for the continued growth of the continuation fund market, which is now seen as a viable exit option for the private markets community.