"Self-buying and self-selling" volume surpasses $100 billion! Private equity funds' "left hand to right hand" transactions hit a historic high

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"Self-buy, self-sell" transactions break $100 billion! Private equity funds' "left hand selling to the right hand" hit a historic high

Global private equity (PE) firms are selling assets to their own newly managed funds at an unprecedented pace to cope with obstacles in traditional exit channels. This strategy, known as "continuation vehicles," is expected to set a new record in deal sizes this year, fundamentally changing how the industry returns cash to investors.

According to Sunaina Sinha Haldea, Global Head of Private Capital Advisory at Raymond James, such deals are projected to reach $107 billion in 2025, far exceeding last year’s $70 billion. Skip Fahrholz, who oversees these transactions in Europe for investment bank Jefferies, also expects global sales involving continuation vehicles to approach $100 billion this year. Currently, these deals account for roughly one-fifth of all private equity asset sales in 2024, compared to only 12%-13% last year.

This surge reflects the predicament buyout firms face in obtaining ideal valuations from public markets or external buyers. By transferring assets into continuation vehicles, fund managers can return cash to investors in older funds while continuing to hold the assets in hopes of greater future returns. However, this "left hand selling to the right hand" approach—where both buyer and seller are managed by the same firm—raises deep market concerns over conflicts of interest and fair valuations.

While fund managers see this as an effective liquidity solution under pressure, contributors, especially pension funds, are facing new asset evaluation challenges and potential risks under this structure; some sovereign wealth funds have even initiated lawsuits because of it.

Blocked exits drive $100 billion boom

The boom in continuation vehicles is mainly because buyout firms cannot obtain their desired valuations from external buyers or public markets, so they choose to keep their investments in hopes of selling at higher prices in the future. Sinha Haldea notes:

"This year is set to break all records."

She believes that while exit values are still slowly recovering from the low point of 2024, these deals have become a "popular and effective win-win liquidity solution."

This structure is highly attractive to private equity firms—not only does it solve liquidity challenges, it also allows new fund structures to generate extra management fees, and potentially future performance fees from companies that were originally in expiring funds. Per Franzén, CEO of Swedish PE giant EQT, recently said that although his firm has not yet sold assets via continuation vehicles, he hopes to begin such deals to generate additional fees from some holdings.

What was once seen as a last resort for dealing with "problem assets" that could not be sold is now widely used to retain quality assets showing strong performance. European PE firm PAI Partners recently, for the second time, sold part of its shares in Froneri—a €15 billion-valued ice cream group owning the Häagen-Dazs brand—to a continuation vehicle.

Additionally, multiple well-known firms including Vista Equity Partners, New Mountain Capital, and Inflexion have used multi-billion dollar continuation vehicles to unwind some of their largest investments.

Conflict of interest & investor concerns

Although private equity managers claim this gives original backers a chance to roll their shares into new funds, and new investors help price asset transfers, supporters such as pension funds remain wary. The core issue is that the same buyout firm is both the buyer and the seller in these deals.

Some investors worry that firms may undervalue transferred assets, harming original backers who wish to exit. Additionally, those used to investing on the basis of management teams rather than specific assets may lack the skills or ability to evaluate individual companies. Research by Bain & Co reveals that nearly two-thirds of PE fund investors still prefer to exit via traditional sales or IPOs.

Such conflicts have led to real legal disputes. Sovereign wealth fund Abu Dhabi Investment Council recently sued US private equity firm Energy & Minerals Group (EMG), accusing it of "short-changing" investors while selling holdings to a continuation vehicle.

The Abu Dhabi fund alleges that EMG undervalued its natural gas drilling subsidiary Ascent Resources when planning to sell it to themselves. The transaction would have increased EMG’s ownership stake and restarted their ability to earn fees from the group. Ultimately, EMG was forced to halt the sale, after which several investment groups made bids to acquire Ascent Resources.

Risk warning and disclaimerThe market involves risk and investment should be prudent. This article does not constitute personal investment advice, nor does it address the specific investment objectives, financial circumstances, or needs of any particular user. Users should consider whether any opinions, views, or conclusions expressed herein fit their specific situation. Investments made accordingly are at one’s own risk. ```