b'ILPA PRIVATE MARKETS EDGE Q2 202112 13TOP OF MIND TOP OF MINDContinuation Funds:Expert Perspective: What LPs Should Know(cont.) Post-Pandemic LP CONSIDERATIONS Investment DriversContinuation funds are growing in popularity and are likelythanportfoliocompaniesthathavebeenheldfor6 to become more popular moving forward. When facingto 8 years, some transactions have included portfolioOTPP STUDY OF POST-COVID acontinuationfundprocess,LPsshouldconsiderthecompanies that have only been held for 3 to 4 years. LPsINVESTMENT DRIVERSfollowing factors: should closely review and consider the GPs rationale forthetransaction.LPsshouldensurethatthereis DuediligencewindowsforLPsincontinuationacompellingbusinesscaseastowhytheportfolioILPAsCEOSteveNelsonjoinedJonathan transactions are generally compressed. Election noticecompany should be moved to a continuation vehicle.Hausman,ManagingDirectorandHeadof periods are defined specifically in LPAs, but typically LPsLPs should question GPs on why another solution suchGlobalStrategicRelationshipsatOntario get 20 days to make a decision. Two factors complicateas a traditional exit, a fund term extension, etc., has notTeachersPensionPlan,todiscussOTPPs what is already an abbreviated due diligence window.been pursued. studyaimedatunderstandingthelong-range First,astatusquooptionisnotpossibleintheseinvestment implications of the pandemic. transactions.Oncethetransactioniscompleted,theMaterial Details: LPs should request the full scope of originalfundcontinueswithoutthetargetportfoliodocumentationaroundthetransaction,includingtheRead on (pages 1415) for a summary of the companies.new LPA. It is important for LPs to understand how termsmacrotrendsemergingfromtheCOVID ofthenewcontinuationvehiclemaydifferfromthepandemic.Second, these transactions require a different style oforiginalfund,particularlyaroundGPeconomicsand diligencethanLPsareaccustomedwith.Ratherthanalignment of interests. Additionally, LPs should request diligencing funds and managers, LP teams are requiredthe GP to disclose any related deals between the GP to review individual companies, typically necessitatingandacquirerssuchasstapledtransactionsandside in-depth understanding of sectors, business strategies,deals. etc. Coupled with the compressed time frame, these transactionsposeconsiderablestressonLPs.InaGP Carry: In the past, 100% of the GPs proceeds wereWANT TO HEAR MORE?continuation fund process, the GP essentially offloadsrolled into the continuation fund as a GP commitment. buy-sell decisions to the LP.In todays market GPs roll as little as 50-70% into theREGISTER TO GATHER WITH FELLOW LPS AT MCON!new vehicle. LPs should review how much carry is being In anticipation of a continuation fund process, LPs shoulddistributed to the GP versus committed to the new fund.reviewILPAsGuidanceonGP-LedSecondaryFundTheILPAMembersConferenceonJune24willinclude Restructurings,particularlypage9.WhendiligencingRemainingPortfolio:LPsshouldalsoreviewtheinvestmentfocusedcontentcoveringtopicslikeSPACsand acontinuationfund,LPsshouldreviewaspectsoftheremainingportfoliooftheoriginalfund.Onceprivate markets investing in China.transaction beyond the portfolio company: theprocessiscompleted,thefuturegainsoftheAttendees will also gain access to more of Steves interview withTo register, continuation fund will no longer offset other losses. LPsJonathanonthepostcovidinvestmentenvironmentandwill Rationale: When GPs run a process for a continuationshould consider where the fund is in the distributionbenefit from a panel discussion and Q&A on opportunities thatvisit our websitefund, they will provide a rationale for why the portfoliowaterfall.could arise in private markets. company should be moved into a new structure. Rather The event will also feature ESG and DEI focused content sessions. There really is something for every LP; dont miss out! ILPA also offers a group discount for those sending more than four team members!For more information on MCON, includingon discounts, contact the events team!'