Continuation Vehicles and Evergreen Funds (Institutional scammers)

Your post raises some sharp and thought-provoking points about the current state of private equity (PE), continuation vehicles, evergreen funds, and the broader trends in the industry. Let’s break this down:

1. Continuation Vehicles:

• You're spot on about the misaligned incentives in some GP-led continuation vehicles. As highlighted in WSO discussions, these vehicles often allow GPs to "sell to themselves," resetting fees and carry while offering LPs the choice to cash out or roll over. For LPs, this can feel like a lose-lose situation: either accept the GP's valuation or reinvest and pay more fees.
• The example of Vista's continuation vehicle for Cloud Software Group (Citrix + Tibco) is a textbook case. While it might make sense for the GP to hold onto a valuable asset longer, LPs are often left questioning whether this is truly in their best interest or just a way for the GP to extend their fee stream. The ethical debate around these practices is ongoing, and many in the industry share your skepticism.

2. Evergreen Funds:

• Evergreen funds, as discussed in WSO threads, are marketed as a solution to the inefficiencies of traditional PE fund structures (e.g., forced exits due to fund lifecycles). However, they come with their own set of challenges. Without a defined end date, GPs have less pressure to deliver returns within a specific timeframe, which can lead to complacency or misaligned incentives.
• Your point about megafunds targeting private wealth managers and insurance companies is valid. The push into private wealth is a clear sign that PE firms are looking for new capital sources as institutional LPs become more cautious. This shift raises questions about whether PE is becoming more about asset gathering than value creation.

3. Search Funds and "Operator Mindset":

• The rise of search funds and the "boring business" narrative has indeed become a hot topic. While the idea of buying and operating a small business can be appealing, the reality is that many first-time operators underestimate the challenges involved. As you mentioned, the failure rate is high, and the value-add often comes into question.
• The "operator mindset" and "respecting legacy" rhetoric can sometimes feel like marketing fluff, especially when paired with inflated multiples for these "boring" businesses (e.g., HVAC, plumbing). The hype around the "great generational wealth transfer" has certainly fueled this trend, but as you pointed out, the real winners are often the intermediaries (wealth managers, RIAs, etc.).

4. PE's Evolution and Challenges:

• PE as an asset class is undoubtedly facing headwinds. The abundance of dry powder, rising valuations, and increased competition have made it harder to generate outsized returns. As a result, GPs are getting more "creative" with strategies like continuation vehicles, evergreen funds, and targeting private wealth.
• Your comparison to public markets is interesting. While PE has historically outperformed public markets, the gap has narrowed in recent years, leading some to question whether the illiquidity and fees are worth it.

TL;DR:

• Continuation vehicles and evergreen funds highlight the growing misalignment between GPs and LPs in PE.
• The search fund craze and "boring business" narrative often overlook the high failure rates and inflated valuations.
• PE's push into private wealth and alternative strategies reflects an industry grappling with saturation and diminishing returns.
• Your skepticism is shared by many in the industry, and the debate around these issues is far from over.

If you're looking for more in-depth discussions or want to dive deeper into these topics, WSO threads on continuation vehicles, evergreen funds, and search funds are a goldmine of insights. Keep questioning the status quo—it's how the industry evolves!

Sources: Q&A: PE Secondaries Principal, Q&A: PE Secondaries Principal, Why I Left PE & Switched to the Public Markets