So Ben, you help lead the 90-person secondaries team at Jeffries, which is largely focused on the continuation vehicle space today. Why is there such a focus on continuation vehicles today? Well, continuation vehicles represent one of the fastest growing and probably most innovative parts of the private markets. There will be announced in the next week or so north of $110 billion of continuation vehicle volume in 2025. That's a second record year in a row for the market and up quite significantly from where we were in 2024 at about $75 billion of continuation vehicle volume. Is there an 80-20 aspect to this $110 billion where there's a few firms driving the majority of that behavior? It's quite broadly distributed amongst a variety of not just mid-market, large-cap, smaller-cap buyout-focused firms, but venture capital firms. Are these $20 million vehicles, $200 million vehicles? The general market is around a half billion dollars of size for an individual continuation vehicle with the range between, you know, $100 million to $5 billion. The companies that are being involved, contributed to continuation vehicles are companies that can be $50 million of EBITDA or $500 million of EBITDA. There's definitely a strong cohort of mid-market companies that are being targeted by continuation vehicles. But we're also seeing continuation vehicles for pre-IPO VC darlings as well. the stripes and Databricks and, you know, anthropics of the world. And I want to get into, in a little bit, deconstructing what a typical continuation vehicle deal looks like. But first, why this trend for continuation vehicles? Why has there been such an increase in volume over the last couple of years? It's a confluence of factors that is driving the category forward and really up and to the right these last couple of years. What continuation vehicles do at their core is help sponsors manage portfolio companies that are not necessarily well-timed to the 10-year closed-end private equity fund life cycle. You know, the five-year hold period that you oftentimes hear private equity firms talk about. One of the hardest things of investing is seeing what's shifting before everyone else does. For decades, only the largest hedge funds could afford extensive channel research programs to spot inflection points before earnings and to stay ahead of consensus. Meanwhile, smaller funds have been forced to cobble together ad hoc channel intelligence or rely on stale reports from sell-side shops. But channel checks are no longer a luxury. They're becoming table stakes for the industry. The challenge has always been scale, speed, and consistency. That's where AlphaSense comes in. AlphaSense is redefining channel research. 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And one of the reasons is, if you look at it from a first principles basis, what was going on before continuation vehicles in many ways is absurd. So you have this five-year hold period, which to your point is arbitrary. Maybe it should be three years, maybe it should be 10 years. I interviewed Sam Zell's longtime partner, Mark Soter, and he talked about the first year you buy an asset and the last year are problematic. Last year, you're dressing up the asset to sell. First year, you're really trying to get a sense for management. So you kind of have these two dead years, which why does that matter? Well, if you're holding it for five years, 40% of your time is spent either trying to get up to speed on opportunity or trying to dress up an opportunity. But perhaps most importantly, what's a little bit absurd about that is that the going practice is to build these assets, often cases actually turn them around, replace management, do all these painful things. And then when you're done within five years, sell it to your competitor. And that's just been the established practice versus a CV allows you to keep your winners and to continue compounding those winning assets with this asymmetric information where GPs are able to know what's exactly the company that they're buying. That exactly why the market has accelerated as it has And the solution the continuation vehicle market is looking to provide There obviously a lot of friction that happens when a company is sold and a board changes over and a management team is reintroduced to the or introduced rather to new owners potentially replaced You know there are a lot of private equity businesses that have established growth plans and a playbook that's really working, be it organic or inorganic trajectories. And continuation vehicles just allow sponsors to have more time and capital to prosecute those already working strategies. Last time we chatted, you were very frank with me. and told me some LPs like continuation vehicles, some dislike it, most actually hold both opinions at once that have this cognitive dissonance. Why do LPs like continuation vehicles and at the same time don't like those same vehicles? Continuation vehicles are a pretty steady source of liquidity and not just liquidity, but cash liquidity for LPs. So about a little bit shy of 20% of all private equity distributions in 2025 are happening via continuation vehicle transactions. So check one for LPs who haven't seen a lot of liquidity. They also allow LPs to compound winners in their portfolio and keep that capital invested over time versus see one sponsor sell a company to another sponsor and maybe in their exact same roster of managers. And, you know, quite often LPs are committing capital to secondary funds and continuation vehicle focused funds because they see them as a gateway to getting access to really high quality companies featuring superior transaction dynamics and alignment dynamics with both sponsors who are supporting the continuation vehicles as well as management teams at the portfolio companies underneath of them. Now, there's some cognitive dissonance to your point because continuation vehicles have created a portfolio management consideration and motion, frankly, that didn't exist for many LPs 10 years ago. If you were an LP with 100 different line items in your primary fund roster 10 years ago, then you may see one continuation vehicle election in your entire roster of managers. Going back to the stat that I shared that continuation vehicles are representing 15 to 20% of all private equity exits, you're now looking at a dozen plus LP elections in your portfolio. In many ways, having LPs play a direct investing role. A lot of LPs are not set up to do direct deals. Now they essentially are re-underwriting it on a direct basis. It's a different skill set almost. Yeah. No, that's right. I think that's where a lot of the consternation comes from for LPs is how do they handle that new responsibility in their portfolios. LPs also, and I think rightfully so, have skepticism to say the least about these marks in these CV transactions. Abu Dhabi Investment Corporation went so much as to sue one of their managers because of that mark. How do LPs know that this is the right pricing? What's their mechanism for ascertaining the true value of assets? There are a few different ways that these continuation vehicles can be priced. The most common mechanism is for a sponsor to hire an advisor to run an auction process really focused on continuation vehicle investors that would bid for the asset and submit term sheets for a continuation vehicle opportunity. These are a host of both traditional secondary investors as well as a variety of new entrants that historically were not focused at all on continuation vehicle investments and are now raising dedicated strategies focused on the segment. So that's one of the ways that these transactions are priced is via this M&A-like auction process. But instead of targeting financial sponsors and strategics, you're really focused on these continuation vehicle investors. The other way is as part of a equity recapitalization of a business that is led by another financial sponsor. The asset was worth a billion dollars at entry point. Let's say now another buyout firm wants to come in at a $5 billion valuation, but the GPs from that fund that invests at a billion dollars want to essentially co-invest or co-manage with that $5 billion. Is that what you're talking about? Yeah, that's right. So at the larger sizing end of the spectrum, the 5 to 10 to 15 to 20 billion dollar TEV companies that are private equity owned, quite frequently you'll see two, three different private equity firms as well as large institutional investors become direct owners of those companies. So company went from a billion dollars to $5 billion owned by the same sponsor. Now that sponsor has a lot of equity to be parted with as it's thinking about an exit. It may bring in another sponsor for a billion dollars at that $5 billion valuation, leaving quite a lot of unrealized value that they continue to hold. The continuation vehicle in that instance could be used to monetize that residual stub that they weren't able to get liquidity on at that $5 billion valuation. That maybe about a quarter of the continuation vehicle market Again the vast majority of these transactions are being priced by auctions targeting CV investors What are those best practices that you like to see in a deal that aligns everybody in a good opportunity for a continuation vehicle investment? Yeah, continuation vehicles are really predicated on a rollover option for LPs, a flexible rollover option for LPs. This is a great option for LPs to either take liquidity or to continue to compound a position that already exists and is performing quite nicely. And LPs need to feel like it's truly an option for them to be able to to do exactly just that. So that rollover option is a particularly important leg of the stool for these transactions full stop. Do you have LPs that are rolling some and taking some chips off the table or are these? Yeah. That's kind of the best practice. Typically we see LPs either take full liquidity or, or roll over their entire position in a CB, but you know, you'll have a host of LPs that go in either direction. And you do have a bunch of LPs that also say, gosh, I'd love to take my cost basis back, but I can probably roll the rest. What are you looking for as a banker on these deals? What's the most attractive type of deal and why? I'll answer that question two different ways. One of which being the general profile of the company that is in consideration. There's a really broad level of interest from continuation vehicle investors for mid-market companies that in to call it $25 to $250 million of EBITDA zip code that have reoccurring revenues, predictable future cash flows, inorganic and organic growth vectors, be it a bolt-on M&A strategy or a cross-selling strategy where they can build market share or build products to be sold to their existing customers. Those are the profiles of companies that we really, really love to bring to market and absolutely resonate with continuation vehicle investors. In terms of general transaction, we obviously prefer to work with sponsors that are willing to eat their own cooking and roll the vast majority of their crystallized interest into the continuation vehicle. That sign of conviction and alignment is one of the reasons that the continuation vehicle market exists, frankly, and operates as seamlessly as it does. In that same vein, if you're advising LPs, kind of three check the box preliminary questions on whether they should double click on a CV in their own portfolio or otherwise, what are those like three questions you should ask? How did you get here? Is a great gating initial question for LPs. Background of the investment, how did it perform? What were the specific layers of growth that had benefited from? How you thought about monetization up until this point? What strategic alternatives did you consider for the company before deciding that you wanted to attempt a continuation vehicle transaction. The continuation vehicle market is in a dustbin for companies that cannot be sold. Is the growth trajectory of the business that has been executed so far, does that have legs to continue over another five-year holding period as illustrated? You know, have the company reached a scale where M&A is no longer adding to the bottom line or the wallet share for customers cannot be further maximized. So the figuring out whether or not there's a disconnect between the last five years and the future five years is another important element. Said another way, is this an asset that essentially has run its course? You have the GPs that are rolling their equity. You have the legacy LPs and that fund that oftentimes roll for the rest of the continuation vehicle. Who's gobbling up these opportunities today, 2026? The vast majority of the capital going into the CVs right now represent institutional investors who obviously represent LPs, traditional limited partners, investing in private equity, private credit, real assets. and there's a host of established large players in that category between Collar Capital, Alpenvest, HarperVest, Neuberger-Berman. And there are also hosts, as I referenced a little while ago, a host of new entrants who are really focused on single asset continuation vehicles. And some of those are particularly focused on different sectors, such as software and tech-enabled services businesses. And some of them are profiling more like large-cap buyout funds that see continuation vehicles as an extension of established power rallies. There's also a host of, I would say, the largest global capital allocators that are profiling as LPs kind of powering the private equity ecosystem So the large U pensions the Canadian pensions the Maple Eight the Middle Eastern and East Asian sovereigns that you seeing as frequent LPs and direct investors and companies, those groups are responsible for a lot of the demand for continuation. It kind of solves their problems of how do we deploy a lot of capital per transaction and not be adversely selected because you have the GPs underwriting, you have existing LPs rolling, but yet these deals are enormous. 1,000%. For those LPs that are very keen on co-investment opportunities with their sponsor partners, continuation vehicles are just another way to go about exactly that and buy companies really in partnership with their existing relationships. And so interesting that Jeffries has this within the secondaries group. Not everybody has it that way, but it also solves kind of this J curve issue. And there's a big trend in the alternatives world in general. People want to see non-blind pool opportunities. People don't want to be in these long firms, long-term funds. They want to invest in opportunities that have maybe a three to seven year window versus a 10 plus two, three year window as well. So it also fits into this interesting trend of direct opportunities, non-blind pool opportunities. shorter hold times, reduce JCO? You could make the argument that continuation vehicles are bringing assets closer and funded identifiable opportunities closer to LPs versus the more nebulous bottom line pool fund opportunities from 10 or 20 years ago. So I'm going to put you on the spot with kind of on the buyout side. There's a lot of top-down research, a lot of underwriting. You mentioned this operational plan, but you also work on venture. Are these opportunities being done in the open AIs, Anthropics, Stripes of the World as well? And if so, how do those deals differ from a traditional buyout? The answer is yes, they are being done in that cohort of pre-IPO name. And the rationale for venture capital and growth managers considering a continuation vehicle is usually a bit distinct from a buyout sponsor thinking about a single asset continuation vehicle. And I say that because for a venture capital manager that has been managing an older fund for the last five years, the IPO window has just not been available the same way it has over the last five years up until recently as it was taking another step back five years before that. So venture capital managers are really thinking about this as a simple lever to pull to create cash distributions for a portfolio in an older vintage fund, frankly. And those portfolios are now frequently seeing large exposures to these names that have remained private for a much longer period of time. And they're there because they're not public equity positions yet. So the continuation vehicle in that instance is really solving for enhancing DPI, creating distributions for that manager. Is this also a way for LPs and GPs to date each other on a deal versus a fund? Very expensive date, $500 million. But at least it's not, I guess, a blind date would be the equivalent where you're actually around an asset. Have you seen that? And do those turn into fund commitments and fund relationships, both on the GPL LP side? Or is it strictly we like this asset and we'll part ways after this asset? certainly resonance with that concept in the same way that LPs consider co-investment opportunities as they're considering new manager relationships. Because continuation vehicles, unlike co-investments, it really gives you a window into how the sponsor has thought about growing a business and originating that original investment and partnering with management and what has worked for them in that instance and how they think about the forward prospects of of the business. So we frequently see managers end up building these longer term LP relationships by bringing in, by considering continuation vehicles rather than, you know. It's that old joke. The best way to diligence a manager is to be an investor. One hundred percent. I'm not going to ask you to tell me what you did with the money, but what's the biggest deal you've done to date? I've had the privilege to work on several of the first billion dollar plus continuation vehicles when the market was making that transition from a solution to a problem to a portfolio management tool and a really nice thing to have. And there have been quite a few billion dollar continuation vehicles since then. Well, it's great to hear. Dinner will be on you next time. But in all seriousness, thanks for creating this masterclass on continuation vehicles. Looking forward to continuing this live. Yeah. Thank you. Really appreciate you having me. And obviously the double click on the category. I'm sure you'll hear a lot more about continuation vehicles over the next couple of years. That's it for today's episode of How to Invest. If this conversation gave you new insights or ideas, do me a quick favor. Share with one person in your network you'd find it valuable, or leave a short review wherever you listen. This helps more investors discover the show and keeps us bringing you these conversations week after week. Thank you for your continued support.
