The rise of GP-led secondaries

Following the 2021 M&A boom, there has been an uptick in general partner-led secondary transactions. Specifically, transactions involving single and multi-asset continuation funds are growing in popularity and complexity.

As a result of the high-rate macro environment and resulting valuation gaps, traditional PE exits are less viable. Continuation funds have therefore emerged as an attractive alternative, offering liquidity options for LPs, opportunities for secondary buyers to deploy dry powder in tested assets, and a means to maximise asset value.

In these transactions, a GP can restructure and transfer ownership of a fund’s selected portfolio companies to a newly established continuation fund, managed by the same sponsor. This strategy allows GPs to retain ownership of well-performing companies beyond the original fund's life cycle, enabling them to exit during a more favourable market and maximise the exit multiple.

Personally, I’m drawn to the rise of continuation funds due to my interest in how the economic environment influences dealmaking. The innovative use of continuation funds by sponsors is just one example of the financial strategies being deployed to adapt to the current economic conditions. Interestingly, these strategies are becoming increasingly complex, leading to more intricately structured deals. A notable recent trend, for example, is sponsors investing additional capital into continuation funds, beyond just their crystallised carry.