Hey guys,
I briefly came across a continuation vehicle process but it ultimately didn't happen. CVs seems to be getting more popular as GPs look to keep the quality assets for longer given where things are getting priced these days. Very interested to see if anyone knows how this is modelled from a new LP / cornerstone investor perspective. Would it be replicating the GP/advisors' LBO model with haircut and add in a waterfall to see return to the new LP? And how would GP catch-up/carry be calculated in such process? Would really appreciate any insight, thank you!
Atrea, sorry there are no responses yet. Maybe one of these topics can point you in the right direction:
More suggestions...
Hope that helps.
The modelling isn't that different to a single asset return. The GP is selling from one of a fund that holds multiple assets, it is also buying from those funds. The new LP enter at the value the continuation fund is entering at. The waterfall is similar conceptually but usually the carry rate is lower and the catch up is not as relevant since its a single asset. Continuation funds also have some primary component, usually to fund add-ons, so you need to make an assumption on the timing of deployment, returns and assume a single exit.
Thanks Franco, that’s super helpful! So it sounds like the rolling LPs/existing funds will set the valuation with the new LPs being more like a price taker. Would the new LPs then proceed to model out the asset (embedding returns from assumed add-on) and see their own IRR in their decision making process?
Thanks again for the insight, very rarely see a secondaries process so very intrigued.
Its actually the opposite. The buyer LPs set the price/valuation.
Someone acting in a GP capacity sets the price, since fund / co-invest LPs don’t generally do that and the selling GP (could be the same GP) accepts that price.
Example could be a pension fund that was in the fund that held an asset, but now the co-underwrite/direct team of that pension does the work to determine the price.
Another example, is secondary funds that specialize in this area can set the price.
Usually there is a lead price setter and the rest of LPs decide if the price and other terms works for them or not.
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