Latham’s Texas Private Funds Breakfast Series: Introduction to Continuation Fund Transactions

This winter, Latham’s Investment Funds Practice delivered an in-depth exploration of continuation fund transactions, offering strategic insights and practical guidance in the latest installment of the Texas Private Funds Breakfast Series. The quarterly series is designed to unite senior members of leading private capital firms and financial sponsors for networking and market-focused insights.

The discussion, led by partners Ivana Rouse and Matt Wynne, focused on the evolving landscape of continuation fund transactions, highlighting key strategic considerations for fund managers, including liquidity options, pricing dynamics, tax structuring, and regulatory compliance. Quinn Kolberg, a managing director at William Blair & Company, joined as a guest speaker and provided timely insights on key commercial drivers and considerations for sponsors considering these transactions. The session also explored how these transactions can be effectively utilized to optimize portfolio management and meet the needs of a wide range of investors.

Key Takeaways

• Strategic Use of Continuation Funds: Continuation fund transactions are increasingly being leveraged as a strategic tool to continue the development of valuable assets. These transactions allow fund managers to provide liquidity to investors while retaining high-potential assets that require more time to reach their full value.
• Liquidity and Investor Options: The session highlighted the dual benefit of continuation funds in offering liquidity to investors who wish to exit while allowing others to maintain their investment exposure. This flexibility is crucial for managing diverse investor needs and optimizing fund performance.
• Pricing Dynamics and Market Trends: A notable trend is the superior pricing achieved by single-asset continuation funds (SACFs) compared to multi-asset continuation funds (MACFs). The session noted a shift away from buyer-friendly pricing dynamics, reflecting increased demand and competition in the market, including from the dramatic growth of new entrants and fundraising on the buy-side market.
• Tax Structuring and Regulatory Compliance: The session emphasized the importance of tax-efficient structuring, with discussions on the choice between taxable sales and tax-deferred rollovers. Regulatory compliance, including obtaining necessary consents and navigating an evolving regulatory environment, was also a key focus.
• Conflict of Interest and Transparency: The session underscored the need for transparency in managing conflicts of interest inherent in continuation fund transactions. Ensuring clear communication and disclosure to investors is essential to maintain trust and regulatory compliance.
• Future Growth and Market Outlook: Looking ahead, the continuation fund market and broader secondary market are expected to continue their significant growth, driven by the need for liquidity and the adoption of continuation fund technology. The session projected a robust increase in transaction volumes, supported by a generally strong track record of fund performance for existing continuation funds.

Previous installments in the Texas Private Funds Breakfast Series include the SEC’s 2025 examination priorities, the SEC’s updated rules for private fund advisers, and financing options and considerations for funds and portfolio companies.

If you have questions, please contact a member of our Investment Funds Practice or the Latham lawyer with whom you normally consult. Learn more about the Texas Private Funds Breakfast Series and upcoming topics here.