Rothschild Continuation Finance 9

Rothschild Continuation Finance (RCF), also sometimes referred to as Rothschild Five Arrows Secondary Fund, forms part of the Rothschild Merchant Banking division within Rothschild & Co. It is a global private equity firm specializing in continuation fund investments, meaning it focuses on acquiring existing assets from private equity funds that are nearing the end of their lifespan.

What are Continuation Funds? Continuation funds represent a growing trend in the private equity industry. Typically, a private equity fund operates on a 10-year lifespan. As a fund approaches the end of its term, the general partners (GPs) must find a way to exit their investments and return capital to their limited partners (LPs). A continuation fund provides an alternative exit strategy. Instead of selling the assets to a new buyer, the GP can create a new fund (the continuation fund) to purchase the existing assets from the original fund. LPs in the original fund can choose to either sell their stakes to the continuation fund or roll over their investment into the new vehicle.

RCF’s Role and Strategy RCF plays the role of the buyer in these continuation fund transactions. They raise capital from institutional investors who are interested in acquiring mature, often high-performing, assets from existing private equity portfolios. The strategy is to provide liquidity to original fund LPs while giving the GP more time to manage and potentially enhance the value of the assets. RCF typically targets investments in established companies with strong management teams and proven business models. They often seek to add value through strategic initiatives, operational improvements, and further acquisitions.

Benefits of RCF and Continuation Funds For LPs in the original fund, a continuation fund offers a liquidity option, allowing them to realize a return on their investment sooner rather than waiting for a potentially uncertain exit. For the GP, it provides more time to realize the full potential of the asset, especially if they believe there is still significant upside. For RCF and its investors, it presents the opportunity to acquire mature assets with a track record of performance, often at an attractive valuation compared to a primary investment.

Criticisms and Considerations While continuation funds offer benefits, they also attract scrutiny. Concerns exist around potential conflicts of interest, as the GP is both the seller and, to some extent, involved in the valuation of the assets being sold. Transparency and fair pricing are crucial to ensure that LPs receive a fair deal. Furthermore, the higher fees associated with a new fund structure can also be a point of contention. RCF and other firms active in the continuation fund space are increasingly focused on addressing these concerns through robust governance processes and independent valuations.

In summary, Rothschild Continuation Finance is a prominent player in the evolving private equity secondary market, specializing in acquiring mature assets through continuation fund transactions. Their strategy offers liquidity to existing fund investors while providing opportunities for further value creation in established businesses.