Private Equity Spotlight – "SI Decade: From Frustration to Longer Holds with Single-Asset Continuation Vehicles"

Host: Madeline Farman, Secondaries Investor / PEI Group
Guests: Holcomb Green (Global Head, Lazard Private Capital Advisory), Harold Hope (Global Head of Secondaries Investing, Goldman Sachs Asset Management)
Date: April 29, 2024

Episode Overview

This episode, the third in PEI Group’s “Decade of Secondaries Investor” miniseries, explores the dramatic rise and evolution of single-asset continuation funds (single-asset CVs) in private equity. Through an in-depth conversation with Holcomb Green and Harold Hope—two industry veterans with a long history in secondaries—the discussion traces how these vehicles moved from a once-stigmatized, niche tool for troubled funds to a mainstream solution for “crown jewel” assets. The episode also delves into geographic market dynamics, the impact of COVID-19, capital constraints for mega deals, and predictions for the future.

Key Discussion Points & Insights

1. The Origins and Evolution of Single-Asset Continuation Funds

• Initial Frustration in PE: Private equity firms wanted to hold onto their best-performing assets for longer—but traditional exits, like sales or IPOs, forced their hand, often to the chagrin of GPs and LPs.

  • “How can we hold onto our crown jewel assets for a longer term without selling them to a competitor?” (A, 00:01)

• The First Deals

  • 2004 Prototype: Green and Hope’s first “pre-continuation fund” was for Gores Group, where a minority stake in a portfolio company was sold to Goldman Sachs Asset Management via a special purpose vehicle—a precursor to modern continuation fund structures.
    • “The very first one... was for the Gores Group in Los Angeles. It was in 2004.” (B, 02:08)

• Market Acceleration: By 2018, single-asset CVs exploded in popularity, fueled by favorable structuring and market acceptance.

  • Landmark deal: Warburg Pincus single-asset transaction pre-pandemic (B, 02:53)

2. Market Innovation, Stigma, and Mainstream Acceptance

• From “Zombie Funds” to Innovation:

  • Early continuation vehicles were stigmatized as solutions for “zombie funds”—troubled, long-dated portfolios needing fixes. Over time, the approach matured, addressing both troubled and high-quality assets.
    • “These vehicles were given the derogatory moniker zombie funds… But some [contained] fundamentally strong businesses in need of follow-on and transitional capital.” (A, 04:51–05:48)

• Breaking the Stigma:

  • Success with strong assets and “positive selection bias” helped shift perception. Key: Convincing sponsors that continuation vehicles could serve thriving portfolio needs, not just distressed situations.
    • “Trying to convince sponsors that… this kind of capital solution was appropriate not only for transitional capital in misaligned situations, but… in positively aligned situations.” (B, 06:07)

• Brand Validation:

  • The entry of “brand name, top quartile managers” into the CV space gave the market legitimacy and drove wider adoption.
    • “Brand name private equity fund X just did a deal in the space... if it’s good enough for them, it can be good enough for you.” (C, 09:16)

3. Impact of COVID-19 and Market Growth

• Pandemic as Catalyst:

  • COVID-19 underscored the utility of single-asset CVs, enabling sponsors to support prized assets through uncertainty and providing LPs with liquidity when needed.
    • “When COVID hit... the continuation vehicle structure was a great structure to allow the sponsors to sort of hold onto the assets, maybe get more capital... and for LPs... an option for liquidity.” (C, 10:07)

• Statistical Surge:

  • Deal volume more than doubled from 2020 to 2021, with single-asset CVs comprising the largest share of GP-led deals (~39% of $48bn in 2023).
    • “The market more than doubled... from 2020 to 2021 as all of those businesses... needed to find solutions and there was really a significant acceleration.” (B, 10:53)

4. US vs. Europe: Geographic Dynamics

• Perception vs. Reality:

  • While the US fundraising market is 2–3x the size of Europe, Europe “punches above its weight” in mega (billion-plus) single-asset CVs.
    • “The billion dollar plus deals have come from European sponsors or been around European domiciled companies out of global sponsors. I’m not entirely sure what accounts for that.” (B, 13:06)

• Buyer Perspective:

  • Hope: Goldman Sachs has reduced relative exposure to Europe, preferring targeted European single-asset CVs over general sector beta, due to growth, valuation, and geopolitical factors.
    • “What we’ve been doing in Europe has been single-asset continuation vehicles... to be very targeted in what we're buying.” (C, 14:20)

5. Market Constraints and The Path Forward

• Capital Constraints for Mega Deals:

  • The current limit for efficient capital raising is ~$4bn equity. Larger deals are tough until more dedicated pools and limited partners participate.
    • “The capital is not there to form that size continuation fund efficiently… It will get more efficient with the new entrants in the market, with additional limited partners pursuing secondaries directly…” (B, 17:29)

• Track Record and Market Maturity:

  • As more performance data accumulates and the LP buyer community grows, the likelihood of $10bn+ single-asset CV deals increases.
    • “I’m hopeful that as people see more performance information... there’ll be more acceptance... and this solution will work just as well for a $4bn–$5bn equity business as it does for a $400m business.” (C, 15:58)

6. The Future: Structure Evolution, Specialization, and LP Direct Investment

• Not Just an Exit Alternative:

  • Continuation vehicles serve a unique purpose—helping sponsors retain high-conviction assets while providing liquidity, rather than simply replacing traditional exits.
    • “It’s not really a decision between selling a company or IPOing it or doing a continuation vehicle… it’s designed for companies you actually don’t want to sell.” (C, 20:07)

• Need for Buy-Side Innovation:

  • Capital availability is currently the key competitive edge, but long-term success will require buyers to bring unique insights (e.g., sector/strategy specialization) as the market matures.
    • “Long term, secondary buyers… are going to have to bring more than capital to the table.” (C, 20:07)

• GP and LP Direct Involvement:

  • More traditional sponsors (e.g., TPG, Leonard Green, Accel-KKR) and limited partners are entering the continuation fund space directly, and as the strategy matures, multi-billion deals will become common.
    • “We would also expect more limited partners to invest directly... as the returns for these kinds of transactions start to be demonstrated ... I think we'll see the first $10bn dollar continuation fund in less than five years.” (B, 22:19)

• Risk Mitigation Benefits:

  • Single-asset CVs allow for targeted selection of sector, company, and team, making macro risk easier to manage compared to broad, diversified portfolios.
    • “We are picking a specific sector, a specific company… the macro environment is always going to have an impact, [but] it has less of an impact than when you’re buying a portfolio of... 400 underlying companies and many different sectors.” (C, 23:11)

Notable Quotes & Memorable Moments

• On Sponsor Frustration [07:58]:
  “Watching their competitor basically run their playbook and double or triple their money… that was frustrating, and a lot of these sponsors felt like they were selling these companies earlier than they would have wanted to.” — Harold Hope

• On Market Shift [09:16]:
  “That was really the breaking point when this structure got legitimized... most of those sponsors… were focused on doing single names as opposed to portfolios because it was more natural for them.” — Harold Hope

• On the Pandemic’s Push [10:07]:
  “When COVID hit in 2020… the continuation vehicle structure was a great structure to allow sponsors to sort of hold onto the assets… and for LPs… an option for liquidity.” — Harold Hope

• On the Future [22:19]:
  “I believe that there will be much bigger deals in the single-asset market over the coming five years and I think we’ll see the first $10 billion dollar continuation fund in less than five years.” — Holcomb Green

Important Timestamps

• [00:01] – Introduction to single-asset CVs, market stats, and episode setup
• [02:08] – Recounting the first “proto-continuation fund” deal (Gores Group, 2004)
• [02:53] – Landmark Warburg Pincus transaction, market inflection point
• [04:51] – Discussion of “zombie fund” stigma and reapplication of technology
• [06:07] – Overcoming negative perceptions, convincing sponsors
• [07:58] – Sponsor frustration and the rationale behind continuation vehicles
• [09:16] – Brand name validation and mass market shift
• [10:07] – COVID-19’s boost to the continuation vehicle market
• [13:06] – European market strength in mega single-asset deals
• [14:20] – Buyer viewpoint: targeted European CV deals
• [15:58] – Scalability and capital constraints for big-ticket transactions
• [20:07] – Continuation vehicles as a distinct tool, not simply an alternative exit
• [22:19] – GP and LP adoption, $10bn CV deals forecasted

Summary Takeaways

• Single-asset continuation vehicles have matured from a fringe “zombie” fund solution to a widely-employed, strategic PE tool for holding prized companies longer, managing LP liquidity needs, and retaining value.
• Market leadership from blue-chip sponsors and the specific needs revealed during the COVID pandemic accelerated mainstream acceptance and growth.
• Europe’s hidden strength in mega deals coexists with the U.S.’s deep middle market; buyer preferences reflect relative economic environments.
• Capital constraints currently limit mega ($4bn+) deals but the infrastructure and LP interest are growing fast.
• Next Frontiers: Direct LP involvement, GP secondary strategies, and ever-larger CVs (with the first $10bn+ deal expected soon).
• The future will require buy-side differentiation beyond just capital; specialization and strategic insight will be key.

This episode is essential listening for anyone in private equity or institutional investing seeking a clear, lively account of how single-asset continuation funds have redefined portfolio management—and where the market is headed next.