GPs embraced continuation vehicles as an exit alternative in 2022 – report

Credit Suisse's 2022 Secondary Market Review expects GP-leds to experience a resurgence in 2023 after being outpaced by LP-leds last year.

At least 11 GPs launched or closed multiple continuation funds in 2022, according to a new report from Credit Suisse.

Managers are using continuation funds in a way that is “no different from planning for an M&A sale or IPO”, David Klein, co-head of the private fund group at Credit Suisse, told Secondaries Investor. 

“Underlying factors as to why you would run separate processes in the same calendar year are transaction-specific, highlighting that continuation vehicle transactions continue to be bespoke,” Klein added. “That said, factors such as size of the assets, different target investor universes and the use of different advisers could influence the GP’s decision.”

Around half of the deals brought to market by managers launching multiple continuation fund processes last year closed in 2022, while “a handful” are still in the market, Klein said.

Around 150 GP-led transactions were launched last year, with the median size of GP-led transactions sitting at $609 million, according to Credit Suisse’s 2022 Secondary Market Review.

GP-led deals were outpaced by LP-led transactions last year: of the $100 billion in secondaries volume, $55 billion went to LP-led deals, according to the report. At least 28 $1 billion-plus transactions launched last year.

Credit Suisse anticipates GP-led transactions will see a resurgence in volume this year, driven by missed exits in 2022. The secondaries market started the year with $131 billion of equity dry powder, with firms out raising a planned $94 billion in the next 12 months, the report said.

An increasingly diverse buyer universe is capitalising on both GP-led and LP-led transactions, with more than half of Credit Suisse’s deals involving non-traditional sources of capital. Investors include sovereign wealth funds, family offices, asset managers, funds of funds, insurance companies, endowments and foundations, Klein said.

He added that a number of the non-traditional participants had existing relationships with the manager running the secondaries transaction in question.

“These buyers had strong conviction in the manager and typically intimate knowledge of the asset(s) or funds involved. Many of these groups were able to express their interest early on in the process and participated not only by rolling into the deal, but upsized through additional pockets of capital.”

The largest non-traditional participants were asset managers and funds of funds, which have the broadest set of manager relationships and had exposure to the assets or funds involved, Klein said.

Credit Suisse also saw more opportunistic groups participating in secondaries, including family offices and sovereign wealth funds. “We believe this trend will continue as non-traditional buyers gain more familiarity with secondary transactions and seek to invest alongside their highest-conviction managers,” Klein added.