Demystifying A Private Equity Buzzword: Continuation Funds

Private equity lingo is not always easy to understand. Let's demystify the continuation fund concept and see how to launch it.

The business model of the private equity industry

The business model of the private equity industry is to acquire a (majority) stake in a portfolio of private companies through a fund managed by the private equity firm. The acquisition is made with cash that investors put into the fund often in combination with third party loans. The private equity firm puts in hard work to grow or rebuild the portfolio companies. The funds typically have a ten-year term whereby investors have their capital "locked in". They will only get their cash back when the fund sells, or "exits from" as the industry calls it, the portfolio companies. Exits usually take place after some 5-10 years; growing or rebuilding a company simply takes time. Exits must be carefully planned to identify the right moment and buyer to secure the best transaction price. Profits