Temasek CIO gets behind asset-shuffling funds snubbed by others

TEMASEK Holdings is getting behind a controversial type of fund that private equity firms are using to ride out the slump in deal-making.  

The chief investment officer (CIO) of the Singaporean state-owned investor voiced unusual enthusiasm for continuation funds, in which private equity managers shift hard-to-sell assets from an older vehicle into a brand-new one. The repackaged assets are then offered to investors such as Temasek, known as limited partners.

“We see that as a very interesting opportunity for us to come in and find some really good assets in the private equity funds,” Temasek CIO Rohit Sipahimalani said at the Bloomberg Buy-Side Forum in Singapore. The CIO said his firm will “look to invest alongside” private equity firms in the new vehicles.

Some proponents see continuation funds as a way to capitalise on good companies whose sales are in limbo as the deal market stalls. But others see it as a way for managers to monetise under-achieving investments, as the vehicles create a new stream of fees for private equity.

Private equity firms typically cash out of their investments in three to five years. But the high interest rate era has squashed deal-making, forcing down asset valuations – and profits.

Sipahimalani said private equity firms have been forced to wait more than five years to sell in some cases. That suggests they’re putting high-quality assets into the new continuation vehicles to avoid selling them too cheaply, he said.

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“I think you’re getting close to a breaking point where they can’t hold off much longer,” he said. BLOOMBERG