Secondaries Are No Longer a Liquidity Tool. They’re a Private Equity Strategy with Adrian Siew, Rothschild & Co

00:00 Welcome back to the Raw Selection Private Equity Podcast. Joining us today is Adrian Siew, Managing Director at Rothschild & Co and co-head of its GP Solutions practice, focused on continuation vehicles. Adrian, could you give us a brief introduction to yourself? Sure, Alex.

My name is Adrian Siew. I’m a Managing Director here at Rothschild & Co. I joined the firm recently to co-lead the GP Solutions practice, which is focused primarily on continuation vehicle opportunities for our sponsor clients. 00:29 What we are focused on here at Rothschild & Co is combining our continuation vehicle capabilities with our sector expertise.

We’re really excited to have this offering fully integrated within our global advisory platform. What’s particularly exciting is that the growth of this market has been phenomenal over the past five years. There is a strong tailwind that I don’t see slowing down. 00:59 As this product becomes more ingrained, I think every sponsor and every private equity firm will, at some stage in its lifecycle, consider completing a continuation vehicle.

I would say that the majority will probably end up completing one eventually as well. I’m excited to be here and glad to have this discussion. Without pointing out the obvious economic conditions affecting private equity, what is your take on why continuation vehicles are so prevalent and growing so quickly at this point? 01:29 First of all, continuation vehicle technology has been around for a long time.

In the past, it was referred to as a fund recapitalisation or a fund restructuring. Around 2017 or 2018, the market began leaning into the term “continuation vehicle.” I think the use of continuation vehicles is much more widely adopted today for two reasons. The first is that there is much more capital dedicated to these opportunities.

01:58 A significant amount of secondaries-focused capital has been raised, not only for LP-led situations but also to pursue single-asset and multi-asset continuation vehicles. I wouldn’t describe the capital as abundant, because I personally believe there is still a long way to go. However, the amount of capital available to deploy into these situations has increased materially from where it started. 02:25 As a result, GPs are leaning into the market more.

The second reason is that the technology is no longer unfamiliar. If you look at the top 100 GPs or private equity firms in the world, around 80% have completed a continuation vehicle. Of that 80%, I would argue that more than half have completed more than one. I wouldn’t necessarily describe them as serial issuers.

02:53 However, once you have completed your first continuation vehicle, the stigma has definitely gone. Firms can then selectively review their portfolios, identify the right assets for a continuation vehicle and pursue that route. There are also many benefits beyond the opportunity to hold an asset for longer. You can build relationships with new LPs, provide liquidity to your legacy LPs and continue a successful journey with the portfolio company’s management team for a second lap around the track.

03:21 That makes sense. What is one mistake you see private equity firms making, and what would you suggest they do differently? 03:39 I would say that not every asset should be placed into a continuation vehicle. Sometimes GPs lean towards the continuation vehicle product as the option of last resort.

A continuation vehicle should be assessed alongside an IPO or a traditional M&A sale to either another sponsor or a strategic buyer. The viability of a continuation vehicle should be discussed at that initial stage. 04:07 Sometimes there is a bias towards pursuing a continuation vehicle as the last available option, and those situations can become more difficult. That said, I have completed deals where that was the case and the transaction still worked.

As the market matures, I think the buyer universe will become much more astute. 04:34 Buyers will focus on the rationale for completing the continuation vehicle and whether the narrative is coherent. If they feel that it is the option of last resort, it may not be a high-priority continuation vehicle opportunity for them. 04:46 From your perspective, how are prolonged hold periods, slower exit activity, fundraising pressure and capital deployment affecting demand for liquidity solutions?

There have been so many compounding macro factors that have brought us to this point. It hasn’t just been one year of a slowdown or the closure of the IPO window. 05:16 It hasn’t just been one year of slower M&A. It has been four or five consecutive years of these thematic changes, which have pushed LPs to find ways to relieve the pressure.

There needs to be a way to return liquidity. If LPs are not receiving liquidity from the investments or GPs they have backed, they will manufacture their own. 05:45 That is why there has been a surge in the LP-led market, with LPs trading their fund positions to secondary buyers to generate liquidity for their programmes. Taking a step back, LP programmes have traditionally been designed to be self-funding.

They map out deployment so that, as distributions come back, the capital can be redeployed into new opportunities. It works like a flywheel. 06:14 Because distributions have slowed, these programmes have reached something of a stalling point. They need liquidity to get the wheel turning again.

Turning to the secondary market has helped provide that liquidity. That is primarily focused on LP portfolio sales. In the continuation vehicle market, beyond the growing adoption among GPs, this is another opportunity to return liquidity to LPs. 06:43 If you look at distributions in 2025 and ask what percentage was driven by continuation vehicle transactions, the general market consensus is around 15% to 16% of all liquidity returned to LPs.

Overall, LPs are using the secondaries market to get the wheel turning again and keep their programmes funded. 07:12 It also gives GPs another route to return liquidity to the original investors in their funds. Are you seeing continuation vehicles become a strategic portfolio management tool rather than simply a liquidity solution? That’s right.

Investors, particularly large LPs, increasingly view this as a tool in the toolkit. 07:37 I wouldn’t say it is used systematically, but it is used in the right circumstances. It is not simply a knee-jerk reaction to changing market conditions. You tend to see more LP-led secondary transactions after a major market downturn, when investors become overweight in private markets and need to rebalance their portfolios.

Outside of those situations, however, investors are now using the secondaries market almost programmatically. 08:06 They use it to generate liquidity from older vintages, remove non-core manager relationships and rebalance portfolios. It gives them a way to do this without simply waiting for time to pass or for certain relationships to fall out of focus. LPs are using the market as an active tool in their toolkit.

It is certainly used following a large market shock, but that is no longer its primary purpose. 08:35 It has become a muscle that is exercised at the right time. 08:39 Have you also seen this develop into a tool for portfolio optimisation, capital recycling and long-term private markets strategy? It means investors no longer need to feel as constrained in their primary investment strategy.

Before the secondaries market became so buoyant, an LP investing with a GP would typically expect to hold that position for approximately 10 years. 09:05 Now that investors can sell or transfer a position much earlier than the typical fund duration, portfolio optimisation becomes possible. It allows investors to manage their core relationships and reduce exposure to sectors such as energy or technology. They can prune and adjust their portfolios by trading out of those positions.

09:37 Private equity is still relatively young compared with more traditional asset classes, and the secondaries market adds another dimension. How do you see this reshaping sponsor - LP relationships and private market investing more broadly? I think it is additive to the sponsor - LP relationship. 10:05 It allows the GP to actively provide liquidity options to the LP.

A unique characteristic of a continuation vehicle is that, when you run the process, you are not forcing the LP to take liquidity. An LP has full optionality. It can participate in the continuation vehicle and roll its stake into it, continuing alongside the asset for a second lap. 10:34 These processes, and the way we think about them at Rothschild & Co, are not designed to force anything upon current LPs.

These are very important relationships for the GP. You need to conduct the process transparently. You need to ensure that the LP advisory committee and current LPs understand the rationale and reasons for the transaction. Everyone needs to be aligned on the process to ensure a successful transaction.

11:03 Every industry has its good, its bad and its ugly. Looking at the continuation vehicle market from both a GP and LP perspective, how should investors assess what a good continuation vehicle looks like and what a bad deal might look like? It will obviously depend on the individual transaction, but what are the general red flags? 11:23 It goes back to my opening point about the narrative.

In today’s market, the narrative is key. The reasons for pursuing the continuation vehicle option need to be supported by the right merits. The first consideration is whether the asset has performed well. When the continuation vehicle transaction takes place at the market-clearing price, it should generate a strong return for the existing LPs.

11:52 The second consideration is whether there is enough value remaining in the asset to generate another private-equity-style return. The GP should be a net buyer of the asset rather than a net seller. Under a de novo underwriting of the asset, there should be another return of more than two times that the GP is confident it can achieve. You could argue that this is being pursued in a de-risked situation because the GP already owns the asset.

12:21 The GP is already aware of the skeletons in the closet, to some degree, and is confident that the asset can generate another strong return from the current market-clearing price. The next consideration is alignment. The investors in the continuation vehicle are passive investors. They are LPs and do not control or manage the asset on a day-to-day basis.

12:49 As a result, they want to see that the GP is aligned with the vehicle and that everyone is working towards the same outcome during the second hold period. Alignment is heavily scrutinised in all of these deals. Investors want to ensure that this is a re-risking event rather than a de-risking event. The asset being transferred into the continuation vehicle should be a trophy asset, or an asset in which the GP has high conviction.

13:18 The GP should be willing to commit capital behind the asset to demonstrate that conviction. I have touched on the narrative, alignment and transfer value. Another consideration is LP advisory committee support. You need to position the continuation vehicle as the right path forward for the asset and provide LPs with the appropriate optionality to participate or take liquidity.

Finally, the asset needs to have a very clear path for the next stage of its journey. 13:47 What is the exit likely to look like over the next three to six years? The purpose of a continuation vehicle is not to place the asset into another vehicle for 20 years. There should be another feasible and strategically planned exit event within the next three to six years.

That makes sense. What do you read, watch or listen to, Adrian, that you would recommend others check out? 14:10 At the moment, I’m glued to my television watching the World Cup. That is one thing I’m focused on.

This is probably a typical answer, but I remember reading Barbarians at the Gate when I was in college. It is something I read early on, and I would recommend it to people who are just getting into private equity. There has been a change in the private equity market, and I think the secondaries market has benefited from that evolution. 14:39 However, Barbarians at the Gate is a classic and is probably relevant to the listeners here today.

Absolutely. If anybody wishes to get in touch with you, what is the best way to do so? Visit the Rothschild & Co website. Our contact details are available there.

For graduates and MBA students, we have a very structured recruitment programme. 15:07 For those considering a career in secondaries, the growth of the market has been phenomenal. The required skill set ranges from capital raising to M&A-style capabilities, so it is a very dynamic career choice for those pursuing a career in investment banking. You can reach out through the website.

The details are available there. Thank you very much for coming onto The Private Equity Podcast. Thanks, Alex. It has been a pleasure.

15:35 As always, thank you very much to all our listeners for tuning in to The Private Equity Podcast. Until next time, keep smashing it.