The US Securities and Exchange Commission’s enforcement division is examining continuation vehicles (CVs), in a move that signals heightened regulatory attention on private markets structures, according to a report by Reuters.
The review is understood to focus on manager conflicts of interest, valuation methodologies and whether investor disclosures around continuation vehicle transactions are sufficiently clear and consistent. Specific funds and asset types under review were not identified.
Continuation vehicles have become an increasingly important liquidity tool for private equity managers navigating a slower exit environment. Manager-led secondaries transactions reached $106bn last year, according to Evercore. Credit-related transactions are also continuing to gain share within the market.
The reported enforcement activity comes as regulators increase focus on private market practices around liquidity, valuation and governance. Private equity managers continue to defend continuation vehicles as an important portfolio management and liquidity solution, noting that transactions are typically supported by third-party valuation and fairness processes. Regulatory review does not imply wrongdoing and may not result in formal action.
The backdrop remains challenging for exits across private markets. Higher interest rates, geopolitical uncertainty and slower M&A activity have contributed to a growing inventory of unsold assets, with private equity firms holding more than 30,000 portfolio companies globally, according to Bain & Company.
