The majority of GPs have observed some level of interest from their investors for continuation funds, according to affiliate title Private Equity International’s Private Fund Leaders Survey 2023.
The survey, which compiled responses from 101 senior buyout, growth, private debt, venture capital, real estate and infrastructure executives globally over the summer, found that 57 percent of managers found their LPs had a small to moderate level of interest in continuation funds. Six percent said their investors had a great level of interest in the opportunity.
Around 80 percent of LPs elected to sell in continuation fund transactions in the first half of this year as distributions across their private equity programmes dried up, according to research from Jefferies.
Investment bank Greenhill sees “quite a bit of activity” driven by GPs who are either fundraising or preparing their next fundraise and who need to increase their distributed to paid-in capital multiple, according to Bernhard Engelien, head of the European secondary capital advisory.
He anticipates the secondaries market will continue to focus on “$200 million to $500 million equity cheque-type deals”. Larger deals of $2 billion-plus will continue to be more difficult to get off the ground given the constraint of capital available to deploy on the buyside, difficulties around syndication given that traditional LPs are currently capital constrained, and the need for a number of large buyer tickets coupled with the fact that the “macro environment remains a bit volatile”, Engelien added.
Most respondents (70 percent) had not raised a continuation and had no plans to in future. Just 15 percent had raised a vehicle to elongate their hold of assets, while a further 15 percent said they had not carried out a continuation fund transaction though planned to do so in the next year.
Of the 20 respondents that had raised or are currently raising a continuation fund, 35 percent said the tougher fundraising environment had contributed to their decision to tap the secondaries market.
The largest challenge faced by most of those 20 respondents (30 percent) in their continuation fund transactions was addressing potential conflicts of interest between investors and managers, followed by ensuring fair valuation prices, including third-party price valuation (25 percent) and demonstrating alternative options had been explored for the assets involved in the transaction (20 percent).
This article has been updated to reflect the fact that 57 percent of LPs had a small to moderate level of interest in continuation funds.
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