Rise of continuation funds sparks private equity valuation concerns
Two of the country's biggest super funds have expressed caution about the growing practice of private equity funds shuffling investments between fund vintages.
Two of the country's largest super funds ‒Colonial First State (CFS) and Mercer Super are increasing their exposure to private equity but are carefully scrutinising 'continuation funds' over concerns they are prone to mis-valuing assets.
CFS head of private equity and unlisted asset Chloé Brayne, who joined the $115 billion super fund nine months ago, told Capital Brief when private equity assets were moved from one fund to another they must be independently re-valued as the assets had been shifted rather than bought at a market price.
“When investing in a fund that comes from a previous vintage or previous fund from the same manager, you’ve got a higher risk that valuations are not appropriate,” Brayne said.
Continuation vehicles allow private equity managers to move assets from a previous fund vintage if they want to continue owning them beyond the typical holding period. These funds can provide liquidity for investors who want to cash out from the original fund, while offering others the ability to roll over their investments into the new vehicle.
