How I Invest with David Weisburd
Episode 216: How the $100 Billion Continuation Vehicle Trend Is Changing Private Equity
Guest: Paul Cohen, Managing Partner at Agility Equity Partners
Date: September 22, 2025
Overview
In this episode, host David Weisburd interviews Paul Cohen, Managing Partner at Agility Equity Partners, about the explosive growth, mechanics, and implications of continuation vehicles (CVs) in private equity. They delve into the evolving trends, due diligence nuances, alignment of incentives, risk-return characteristics, lower-middle market opportunities, and the rise of independent sponsor deals. The episode provides both a quantitative and qualitative assessment of the CV ecosystem, drawing on recent research and decades of direct investing experience.
Key Discussion Points & Insights
1. The Rise and Scale of the Continuation Vehicle Market
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Market Growth:
- In 2024, the CV market reached $70 billion, up from $7 billion ten years prior.
“The size of the market in 2024 was $70 billion. And to put that in perspective, the size 10 years ago was $7 billion. So it’s just been growing dramatically.”
— Paul Cohen [01:13] - The first half of 2025 saw another 30% increase, putting the market on pace for $100 billion by year's end.
“It grew 30% first half of 25 versus 24... on pace to hit $100 billion versus 70 last year.”
— Paul Cohen [01:34]
- In 2024, the CV market reached $70 billion, up from $7 billion ten years prior.
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Capital Dynamics:
- In buyouts, dry powder to deals done is about 4:1, but in secondaries (and effectively CVs), it’s close to 1:1, signifying a capital-constrained and opportunity-rich market.
— [01:34]
- In buyouts, dry powder to deals done is about 4:1, but in secondaries (and effectively CVs), it’s close to 1:1, signifying a capital-constrained and opportunity-rich market.
2. Explaining Continuation Vehicles: The Mechanics
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What is a CV?
- A continuation vehicle is a new limited partnership, usually housing a single asset spun out from an existing fund, capitalized by new (and sometimes existing) investors, allowing the GP to “play forward” with a known and high-performing asset.
“Rather than sell it to another private equity fund or strategic investor, they like the opportunity to play forward a company they know well. So what they do is they capitalize a new vehicle... to buy their company from their fund.”
— Paul Cohen [03:11]
- A continuation vehicle is a new limited partnership, usually housing a single asset spun out from an existing fund, capitalized by new (and sometimes existing) investors, allowing the GP to “play forward” with a known and high-performing asset.
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Incentives to Use CVs:
- GPs use CVs because they have maxed out in their current fund (time or capital-wise) but want continued ownership; it provides LPs with liquidity options.
— [04:49], [07:57]
- GPs use CVs because they have maxed out in their current fund (time or capital-wise) but want continued ownership; it provides LPs with liquidity options.
3. Alignment and Potential for Adverse Selection
- Positive Selection:
- GPs typically choose their best assets for CVs and roll their own carry, signaling conviction.
“There’s an interesting positive selection here, the opposite of adverse selection, in that they're choosing not to sell the asset and they want to hold it and they want to also roll up their carry...”
— David Weisburd [05:42] - Diligence is critical, as there are cases where failed auctions result in GPs moving subpar assets into CVs at artificially high valuations.
“Frankly, what we're seeing a lot today because the markets are so backed up is we're seeing companies that have had a failed auction process that the GP says, ‘Oh, okay, well then I'll do a continuation vehicle on it. And by the way, I want to do the continuation vehicle at the same valuation I couldn't get in the failed auction process.’”
— Paul Cohen [06:05]
- GPs typically choose their best assets for CVs and roll their own carry, signaling conviction.
4. The Flow of Funds in CV Transactions
- Stakeholder Roles & Economic Terms:
- Institutional investors like Agility capitalize the CV, which then buys the portfolio asset at fair value from the original fund.
- GPs roll their carried interest into the new vehicle, aligning incentives and giving LPs the choice to cash out or roll into the new CV.
“The GP doesn't take money off the table. The GP rolls that $60 million into the CV and it's their investment into the CV. The LPs... can choose instead of taking cash to roll their capital also into the CV.”
— Paul Cohen [07:57]
5. CVs from the Perspectives of GPs and LPs
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GP Perspective:
- Ability to deploy de-risked capital into a known asset, leverage prior operations improvements, and potentially multiply their own rolled carry. New carry structures better align interests (tiered, higher return hurdles before 20% kicks in).
“It's a de-risked investment for them to make. And it's an investment where they've worked out the kinks... And the economics are really compelling.”
— Paul Cohen [11:19]
- Ability to deploy de-risked capital into a known asset, leverage prior operations improvements, and potentially multiply their own rolled carry. New carry structures better align interests (tiered, higher return hurdles before 20% kicks in).
-
LP Perspective:
- CVs offer liquidity optionality and shorter hold periods, and provide a unique alignment versus traditional buyouts.
“It just gives them optionality... So if they want to, they can take the optionality of rolling their investment and getting a 2 to 3x in a few more years.”
— Paul Cohen [14:54] - Not all LPs agree—some seek immediate DPI due to current scarcity of cash returns in private equity.
“I had the CIO of an endowment tell me... she was a default yes, in CVs... but the IC was almost a default no, in that they wanted the DPI given the lack of DPI in the asset class.”
— David Weisburd [10:20]
- CVs offer liquidity optionality and shorter hold periods, and provide a unique alignment versus traditional buyouts.
6. Empirical Evidence: HEC Paris Study
- Findings (HEC Paris, 2018–2023, 300 CVs):
- CVs outperformed comparable buyouts:
- CVs: 2.4x total value (1.7x cash returned), less return dispersion (less risk)
- Buyouts: 1.8x total value (0.8x cash returned)
- “It's apples to apples, first quartile to first quartile.”
— Paul Cohen [18:56]“CVs had a higher return than buyouts of similar vintage years. They had a higher dpi... and they had a lower dispersion of returns, so they were less risky than the buyouts.”
— Paul Cohen [17:00], [19:20] - Supported by tighter return dispersion (lower volatility). — [23:38]
- CVs outperformed comparable buyouts:
7. Market Trends and the Lower Middle Market
- Trickle-Down Effect:
- CVs started in large-cap buyouts—now 50% of the largest 100 funds have executed at least one CV—but are increasingly being adopted in the lower middle market for higher alpha, lower competition, and easier operational improvements.
“There’s more return opportunity with the smaller companies... It’s easier to double a company that has $10 to $15 million of EBITDA...”
— Paul Cohen [22:06]
- CVs started in large-cap buyouts—now 50% of the largest 100 funds have executed at least one CV—but are increasingly being adopted in the lower middle market for higher alpha, lower competition, and easier operational improvements.
8. Independent Sponsors: The Next Frontier
- Definition & Scale:
- Former fund managers or deal professionals who raise capital deal-by-deal rather than via a blind pool fund.
- 1500+ in North America; the deal volume rivals or exceeds that of traditional funds, though at smaller figures per deal. — [24:29]
- Growth Factors:
- Investors seek lower middle market exposure and the ability to pick deals; professionals enjoy the path to track record and eventual fund formation.
“There’s tremendous deal flow there and the investor gets the option to choose which deals they go into. So the perception... is that they're minimizing risk...”
— Paul Cohen [25:41]
- Investors seek lower middle market exposure and the ability to pick deals; professionals enjoy the path to track record and eventual fund formation.
9. Evolution of CVs and Strategic Lessons
- Prediction for the Next 10 Years:
- Segmentation of the CV market; single asset CVs in the lower middle market will become nearly indistinguishable from buyout firms in structure and approach.
“When you look back 10 years from now... they're just going to look like buyout firms accessing buyouts through partnering with sponsors.”
— Paul Cohen [28:29] - Asset allocators may be missing out on the best companies if they only invest in buyout funds, not CVs.
- Segmentation of the CV market; single asset CVs in the lower middle market will become nearly indistinguishable from buyout firms in structure and approach.
10. Alignment, Ethics, and Conflict Management
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Asset Management Incentives:
- Top GPs are professional and generally ethical but may be more focused on asset aggregation and fee generation than performance alignment with alpha-seeking LPs.
“You can’t survive in the industry for over a long period of time if you’re unethical. ... These firms are really just asset aggregators, raising bigger and bigger funds, rolling out new strategies all the time.”
— Paul Cohen [34:41]
- Top GPs are professional and generally ethical but may be more focused on asset aggregation and fee generation than performance alignment with alpha-seeking LPs.
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CV Conflict Mitigation:
- Market norms (valuation policies, third-party fairness opinions/bank-run processes) act as regulators to prevent GP self-dealing in CVs.
“There is a conflict of interest... but... most CVs are done around the current [market] value. ... The gold standard... 99.9% of GPs hire an investment bank to run a process.”
— Paul Cohen [37:48]
- Market norms (valuation policies, third-party fairness opinions/bank-run processes) act as regulators to prevent GP self-dealing in CVs.
11. Timeless Career Advice
- Trust Your Gut Around People:
“Trust your gut, especially when it comes to people… If alarm bells go off, don’t invest in that person.”
— Paul Cohen [39:50]- Quick corrective action, especially with underperforming CEOs or management, is almost always better than waiting.
“If you need to make a change at a company, make it quickly. ... If you rip off that band aid, it’s much better to do them quickly.”
— Paul Cohen [39:50] - Most management teams are relieved when necessary changes are made.
- Quick corrective action, especially with underperforming CEOs or management, is almost always better than waiting.
Notable Quotes & Memorable Moments
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On DPI famine in PE:
“If you look at the DPI, the cash coming back to investors since really the 2018 vintage, it’s been really low. There’s been a famine.”
— Paul Cohen [02:50] -
On positive selection bias in CVs:
“The best diligence is to be an existing investor. ... By nature, diligence has a sales aspect to it, but they're on the inside. So it’s de-risked as well.”
— David Weisburd [13:45] -
On alignment and optionality for LPs:
“This gives them an opportunity to get liquidity through the CV. But if they want to… get a 2 to 3x in a few more years. So it gives them optionality.”
— Paul Cohen [14:54] -
On risk and dispersion:
“There’s a much narrower dispersion of returns in the CVs versus the buyouts, which implies it’s less risky.”
— Paul Cohen [19:20] -
On GP asset management incentives:
“The more assets that they manage, they get a management fee off of those assets, and that fee can get very large, even if their performance is just median performance...”
— Paul Cohen [34:41] -
On self-dealing safeguards:
“I think that this self dealing part has really been mitigated because the market recognized this conflict of interest.”
— Paul Cohen [37:48] -
On career wisdom:
“Making mistakes is inherent in becoming a good investor… If alarm bells go off, don’t invest in that person.”
— Paul Cohen [39:50]
Important Timestamps
- [01:13] – Dramatic growth and size of CV market
- [03:11] – What is a continuation vehicle? Explanation and example
- [05:42] – Positive vs. adverse selection in CV assets
- [07:57] – Detailed flow of funds in a CV transaction
- [11:19] – Why CVs are compelling for GPs (economics and de-risking)
- [14:54] – LP benefits in CVs and the psychology of liquidity
- [17:00] – HEC Paris study: performance and risk findings for CVs
- [22:06] – CV adoption moving from large-cap to lower middle market
- [24:29] – Definition and landscape of independent sponsors
- [28:29] – Evolution of CVs: Lower-middle market and buyouts convergence
- [34:41] – Asset management incentives and GP-LP alignment
- [37:48] – Process safeguards and conflict of interest mitigation in CVs
- [39:50] – Paul Cohen’s timeless career advice
Closing Thoughts
Paul Cohen delivers a comprehensive and practical view of how continuation vehicles are transforming private equity, with clear frameworks for evaluating alignment, risk, and opportunity. He advocates a disciplined, aligned, and operationally-focused approach to investing in both CVs and independent sponsor deals, especially in the lower middle market where alpha opportunities remain. The episode blends macro trends, hard data, anecdotes, and timeless advice, making it essential listening for institutional investors and asset allocators seeking an edge in private markets.