What is a continuation fund in the context of GP-led secondary transactions?

What is a continuation fund in the context of GP-led secondary transactions?

• A. A fund that is completely liquidated
• B. A structure where companies are transferred to a new fund
• C. A fund that involves only preferred equity
• D. A fund that only accepts new investors

Answer: (B)

A continuation fund is specifically a structure utilized in GP-led secondary transactions where the general partner transfers existing portfolio companies from an older fund into a new fund. This approach allows the general partner to extend the investment period for these assets, providing additional time to work on their value creation while also enabling investors the chance to either roll their investment into the new fund or cash out. This mechanism is particularly beneficial in scenarios where the underlining assets may not have reached their full potential value or when existing investors wish to continue their investment journey with the same assets under more favorable terms conducive to long-term growth. In this context, the continuation fund serves as a bridge, maintaining and potentially amplifying the investment’s trajectory. Other choices do not accurately reflect the nature and purpose of a continuation fund. Liquidation represents a conclusion, not an extension, while preferred equity and new investors do not directly encapsulate the foundational concept of transferring assets within a GP-led transaction.

A continuation fund is specifically a structure utilized in GP-led secondary transactions where the general partner transfers existing portfolio companies from an older fund into a new fund. This approach allows the general partner to extend the investment period for these assets, providing additional time to work on their value creation while also enabling investors the chance to either roll their investment into the new fund or cash out.

This mechanism is particularly beneficial in scenarios where the underlining assets may not have reached their full potential value or when existing investors wish to continue their investment journey with the same assets under more favorable terms conducive to long-term growth. In this context, the continuation fund serves as a bridge, maintaining and potentially amplifying the investment’s trajectory.

Other choices do not accurately reflect the nature and purpose of a continuation fund. Liquidation represents a conclusion, not an extension, while preferred equity and new investors do not directly encapsulate the foundational concept of transferring assets within a GP-led transaction.