How CVs Spread Downmarket to Lower Middle Market

How can continuation vehicles and independent sponsors unlock structural alpha in private equity when traditional buyouts are struggling with low DPI? In this episode, I go deep with Paul Cohn, Co-Founder and Managing Partner of Agility Equity Partners, on why continuation vehicles (CVs) and independent sponsor deals are reshaping the buyout landscape. Paul explains how CVs let GPs hold their best companies longer while still providing LP liquidity, why the lower middle market offers outsized return potential, and what makes independent sponsors a fast-growing segment of private equity. We cover alignment dynamics, incentives, real-world deal structures, the findings from the HEC Paris study on CVs, and the lessons Paul has learned over 15+ years investing in this niche.

Highlights:

• Continuation vehicle market grew from $7B in 2014 to $70B in 2024, with CVs now making up ~15% of PE exits
• Why CVs give GPs a way to hold their best assets longer while still providing LP liquidity
• Positive selection vs. adverse selection in CVs — why diligence is key
• Example mechanics: GPs rolling carry into CVs and LPs choosing between liquidity or rolling capital
• HEC Paris study: single-asset CVs outperformed buyouts on DPI, total value, and dispersion of returns
• Why CVs are less risky: tighter dispersion, better alignment, and GPs investing alongside LPs
• Growth of independent sponsors: ~1,500 in North America, often more deal volume than traditional funds
• Why lower middle market offers more alpha: easier growth, multiple expansion, less competition
• Key lessons from Paul’s career: trust your gut on people, make tough changes quickly

Guest Bio:

Paul Cohn is a Partner & Founder of Agility Equity Partners, responsible for sourcing and executing new investments, monitoring portfolio-company performance, and leading intermediary deal sourcing. Before founding Agility, he was Managing Director & member of the Investment Committee at Fort Washington Capital Partners where he led GP-Led Secondaries investments. He also served as a Partner at Mellon Ventures, Mellon Bank’s private equity affiliate (part of its founding team; over $1.3B invested/committed across 100+ companies & 70+ funds). Paul began his career as an investment manager at Westinghouse Credit Corporation, focusing on leveraged buyouts. He holds a B.S. and MBA from the Tepper School of Business, Carnegie Mellon University.

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(0:00) Preview (1:52) Concerns about dry powder in large buyouts and CV market constraints (3:03) Explanation and incentives for GPs to use continuation vehicles (6:04) Diligence, adverse selection, and transitioning to CVs (10:20) Psychological influences and LP decision-making on CVs (14:42) Attraction of CVs for LPs and alignment of interests (16:54) HEC Paris study and private equity returns impact on CV market (20:55) Evolution of CVs and lower volatility measurement (23:26) Independent sponsor market growth and transition to raising funds (27:22) Single asset CV development in the buyout market (31:11) Allocator concerns and ethics in private equity (36:29) Conflicts of interest in CVs and advice for young investors (42:38) Experiences with underperforming team members and learnable lessons in investing (44:35) Closing remarks