Mid-Hold Equity: An Alternative to Single-Asset CVs

Both can extend investment runways. Where they diverge is in their use case around liquidity or facilitating growth.

BY KUMBER HUSAIN AND DANIEL GREEN, MANAGING DIRECTORS, ASC

Based on the growth in the market last year, PE sponsors more than ever are utilizing mid-hold equity solutions and GP-led secondaries to maintain exposure to assets they believe have an extended runway for future growth.

While single-asset CVs certainly serve this purpose, GPs are also discovering that the secondaries structure can be something of a blunt instrument— or not always fit for purpose — for situations that don't necessarily revolve around significant liquidity events.

In circumstances when speed and flexibility are required to capitalize on growth opportunities with a small or closing window, other emerging solutions can provide a more optimal fit. Strategic capital, or more specifically mid-hold equity, aims to solve for many of the same pain points or complexities that have historically made CVs the prevailing option for sponsors looking to invest behind the better performers in their portfolio. However, compared to more traditional continuation funds, strategic capital solutions can also bring unmatched speed and flexibility, often necessary in competitive situations. And when portfolio company growth is the primary objective, mid-hold equity can be tailor made to navigate the nuances of investing behind more seasoned assets.

While adoption is growing rapidly, particularly as sponsors come to appreciate the flexibility strategic capital can engender, mid-hold equity is indeed an established "technology" in the GP toolkit, whose use case has been established over multiple vintages. What's different today is that dedicated solution providers, focused exclusively on strategic capital, are bringing more intent focus and specialization to the segment, and that is helping to further distinguish mid-hold equity from single-asset continuation vehicles.

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