Paul Hastings LLP has launched the second edition of its Continuation Vehicles report from its Secondaries team.

The 2023 report outlines the key terms of the continuation vehicles (CVs) that Paul Hastings advised on between Q1 2022 and Q1 2023, offering a clear insight into the provisions found in CVs’ legal documentation. The CVs reported on span a variety of sectors and range in size from $115m to $3.2bn, with an average size of $736m. Total commitments exceeded $10bn, and approximately 55% of the CVs related to single-asset deals.

One key trend highlighted by the latest report is a fall in the management fees charged to CVs. According to the 2023 report, the majority of CVs (52%) charged a management fee between 0.5-1%. Last year, the majority (68%) charged at 1% or higher. Additionally, fewer CVs now pay super carry to their sponsors.

Paul Hastings’ data also shows that the average CV term increased slightly over the last year, rising from 5.2 years in the 2021-2022 report to 5.3 years in the 2022-2023 report. When extensions were included, these figures increased to 7.2 years and 7.9 years respectively.

Ted Craig, Private Investment Funds partner in Paul Hastings’ London office said:

“Our inaugural Report last year showed the growing popularity of CVs in 2021 and an increasing drive to making this a more efficient market. That popularity has clearly continued in 2022. Market dynamics have shifted somewhat however, with secondaries funds investing in CVs being more selective, terms – and economic terms in particular – have moved in their favour. This is shown in our data and reflected in the reduction in average management fee and fewer instances of super carry being charged.

“Regarding trends that aren’t directly addressed in the legal terms and therefore aren’t highlighted in our report, we’re now seeing more examples of sponsors’ current flagship funds investing in or alongside CVs and also the increase in the use of warranty & indemnity insurance.”

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