Continuation Vehicles: The New Normal in Private Equity

Five years ago, a GP-led secondary transaction — in which a fund manager moves assets from an existing fund into a new continuation vehicle — was regarded with suspicion by much of the LP community. The concern was straightforward: if the GP is choosing which assets to roll and which to sell, the assets that get rolled are the ones the GP believes are undervalued, leaving exiting LPs with the short end of the stick. That concern has not disappeared, but it has been substantially addressed by the maturation of the market, the development of independent valuation practices, and the emergence of specialist secondary investors who have the expertise to evaluate these transactions on their merits.

The result is that continuation vehicles have become the dominant form of GP-led secondary transaction, accounting for the majority of the US$100 billion-plus annual secondaries market. The drivers are structural: fund life constraints mean that GPs often reach the end of their investment period holding assets that are still in the value creation phase; traditional exit routes — IPO and strategic sale — have been constrained by market conditions; and LPs increasingly have the sophistication to evaluate whether staying in a continuation vehicle makes sense for their portfolio.

The AI infrastructure sector has been a particularly active area for continuation vehicles. Several of the most valuable digital infrastructure assets — data centre platforms, fibre networks, tower portfolios — were acquired by private equity funds in the 2018-2021 period and are now at a stage where the original fund life is expiring but the assets still have significant value creation potential. Continuation vehicles allow the GP to maintain ownership of these assets while providing liquidity to LPs who need it, funded by secondary investors who are willing to pay for the privilege of owning a known, de-risked asset with a clear value creation roadmap.

At Lensbridge, we have been active in the GP-led secondaries market since its earliest days in Asia. Our experience advising on and investing in these transactions gives us a differentiated perspective on how to evaluate the alignment of interests, the quality of the underlying assets, and the fairness of the pricing. In a market that is growing rapidly and attracting increasing amounts of capital, that experience is a genuine competitive advantage.