CV-Squared: Exploring the Prospects and Risks of a New Wave of Private Equity Financial Instruments.

In the game of financial acrobatics, private equity is always keen on testing out new tricks. Among these latest maneuvers is ‘CV-squared,’ a term used to define continuation funds on continuation funds. This novel solution is earning favour among industry insiders due to its liquidity potential, particularly with older assets in the portfolio.

The maiden voyage for these CV-squared vehicles began in 2021 with the class garnering $23.9 billion globally, a phenomenal jump from the previous year’s $8.9 billion. This marked increase was even more significant when looking at deal count, which quadrupled from 17 to 65. The trend appears to be far from a fly-by-night phase, as the asset peaked in 2024 with $31.1 billion raised across 85 funds.

Despite the encouraging figures and the initial excitement surrounding CV-squares, experts caution that liquidity isn’t the entire picture. Governance, checks and balances are expected to increase significantly with a more sophisticated investor pool looking into the transactions. Risks are particularly acute for limited partners, who might find themselves committing funds for an additional five to seven years with no certain buyer at the end of the fund’s lifecycle.

Additionally, a potential conflict of interest could arise in the relationship between limited and general partners. Particularly when the general partner has already rolled the asset twice and exit options are becoming more and more limited as the asset matures.

With these concerns in mind, industry experts are predicting tighter liquidity and increased scrutiny for these types of vehicles in the coming years. The key is to convince investors of further upside, having enough of a track record in managing assets that have grown astronomically in both value and size. Time will be the ultimate judge of the success or failure of CV-squared as the novel liquidity solution rides the wave of financial innovation. Nonetheless, its rise puts forth a trailblazing model for the private equity landscape, taking both the risks and rewards into account.