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Private equity: How continuation investments are disrupting the buyout market

by Nils Rode, Chief Investment Officer, Schroders Capital; Eufemiano Fuentes Perez, Data Scientist; and Petr Poldauf, Senior Investment Director, Secondaries, Private Equity.

Key takeaways:

  • Market growth outlook. Our central forecasts suggest the size of the continuation investment market will quadruple from around $70 billion to more than $300 billion in the next decade, cementing its role as a key engine of value creation and liquidity generation in private equity.
  • Structural vs. cyclical drivers. The strong growth of continuation investments reflects a profound structural shift. Our research indicates that more than 80% of the 2024 transaction volume for continuation investments is driven by structural growth, not cyclical effects.
  • Appeal to investors. Investor demand for continuation investments is being driven by the prospect of reduced risks and more predictable returns, faster liquidity (about 25% shorter holding periods) and lower fees (about half) compared to traditional buyouts.
  • Disruption lies in who retains ownership. The most significant disruption is not in the concept of holding companies for longer under private equity ownership, but rather in who retains ownership.
  • Displacing deal flow. Continuation investments partially displace secondary buyouts (one fund manager selling to another); we estimate this will in turn displace around 8% of total deal flow for mid and large buyouts over the next 10 years. In response, larger buyout and traditional secondary managers are launching dedicated continuation investment funds, providing further buy-side capital to fuel growth.

 

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