Overview
During this session, Partner Erica Moscarello moderated a panel that discussed the increase in general practitioner (GP)-led secondary transactions and continuation funds.
Session panelists included:
- Christopher Areson, Partner, PJT Partners
- Mike Custar, Managing Director, William Blair
- David Solander, Partner, McDermott Will & Emery
In Depth
Key takeaways included:
- While traditional limited partnership (LP) secondaries have historically dominated the market, the volume of continuation funds and other GP-led secondaries has increased significantly over the past few years as a way for fund sponsors to retain ownership of certain assets while providing liquidity to their limited partners, among other reasons. In 2022, the secondary market reported $110 billion in transaction size.
- GP-led transactions are attractive to management teams since they usually get some liquidity while avoiding the drawbacks of more traditional private equity exit routes (such as adapting to a new board in a third-party sponsor sale, possible redundancies in the case of a strategic sale and lockups and market volatility in the case of an initial public offering).
- Currently, the majority of lead investors in continuation funds are institutional fund-of-funds. However, the panelists anticipate that other types of limited partners will increasingly take a larger role in the continuation fund space.
- There are a number of special considerations with respect to continuation funds in the healthcare space due to the current healthcare regulatory environment.
- There are inherent conflicts of interest in continuation fund transactions since the portfolio companies are sold to an affiliate of the sponsor. Investors and the US Securities and Exchange Commission are increasingly focusing on conflict-of-interest issues in continuation fund transactions. Some of the methods sponsors use to deal with such conflicts of interest include, without limitation, being transparent with investors and obtaining a fair opinion.
