Continuation Vehicle Model

Based on the most helpful WSO content, continuation vehicles are a type of GP-led secondary strategy where a General Partner (GP) transfers assets from an existing fund nearing the end of its life into a new "Continuation Fund" with a longer term. This allows the GP to gain more time to manage the assets and potentially generate additional returns. Here’s a breakdown of the model:

1. Structure:

   • The GP either lifts out single assets (a "carve-out") or all assets from the original fund into the continuation vehicle.
   • Existing Limited Partners (LPs) are given two options:
     • Cash out at or around a price of par.
     • Roll their investment into the new vehicle without additional charges.

2. Economics:

   • The GP's economics are typically reset, which may include new management fees and carry terms.
   • Carry (performance fees) may or may not be crystallized during the transition.

3. Specialization:

   • Some firms, like Timber Bay, focus on concentrated single-asset secondary funds, often comprising 10-12 deals, each centered on a single company.

4. Ethical Considerations:

   • There is ongoing debate about the ethical implications of younger funds using continuation vehicles, as it may raise questions about the alignment of interests between GPs and LPs.

If you're looking for specific financial models or templates, you might want to explore WSO's financial modeling resources or reach out to professionals in the private equity space who specialize in GP-led secondaries.

Sources: Q&A: PE Secondaries Principal, Q&A: PE Secondaries Principal, Long TSLA, Have We Hit Bottom? | The Daily Peel | 10/14/22, https://www.wallstreetoasis.com/forum/investing/spooky-earnings-szn-the-daily-peel-101122?customgpt=1