Rothschild Continuation Finance

Rothschild Continuation Finance (RCF) is a specialized arm of the Rothschild & Co. global financial advisory group. It focuses on providing liquidity solutions to private equity funds, typically near the end of their fund lives. These solutions address situations where a fund needs more time and capital to maximize the value of remaining portfolio companies. This is a growing area within alternative investments, driven by increasing complexities in exiting private companies and the desire of Limited Partners (LPs) to maintain exposure to promising assets.

RCF’s primary offering is structured as a secondary transaction. Instead of selling individual portfolio companies directly, the fund’s General Partner (GP) can sell a portfolio of assets or a portion of the fund itself to a continuation fund managed by RCF. This continuation fund is newly created and capitalized, often with new investors, allowing the GP to continue managing the assets with a fresh infusion of capital and a longer time horizon.

There are several reasons why a GP might consider a continuation fund. Firstly, a remaining portfolio company might require further investment to reach its full potential. The original fund might be nearing its expiry date and lack the resources or mandate for follow-on investments. Secondly, market conditions might be unfavorable for selling a company at its true value within the original fund’s timeframe. A continuation fund provides the GP with the flexibility to wait for a more opportune moment. Thirdly, disagreements among LPs within the original fund regarding the future of certain assets can hinder the exit process. RCF can provide a solution by offering liquidity to those LPs who wish to exit, while allowing the GP to retain control and pursue further growth with remaining assets and supportive LPs.

RCF’s expertise lies in structuring these complex secondary transactions. They conduct thorough due diligence on the portfolio companies, negotiate terms with the GP, and raise capital from a range of institutional investors interested in participating in the continuation fund. These investors might include pension funds, sovereign wealth funds, insurance companies, and other specialized secondary funds.

The benefits of RCF’s approach are multi-faceted. For the GP, it allows for the continued management of high-potential assets and the opportunity to generate further returns. For LPs wishing to exit, it provides immediate liquidity. For new investors in the continuation fund, it offers access to a portfolio of established companies with proven track records and the potential for significant future growth under the continued management of a skilled GP. While fees associated with these transactions can be significant, the potential for increased returns and alignment of interests between all parties involved makes Rothschild Continuation Finance a valuable tool in the private equity landscape.