Episode summary
Scott Ramsower: Continuation Vehicles from the LP Seat
Capital Allocators with Ted Seides
· · 48 min · Hosts: Ted Seides · Guests: Scott Ramsower
Summary
Scott Ramsower argues that continuation vehicles are neither inherently good nor bad, but LPs have come to view them with growing skepticism because the GP sits on both sides of the trade. He says the original appeal to GPs was simple: CVs added a fourth exit route alongside IPOs, sponsor sales, and strategic sales. LPs, however, increasingly see them as conflict vehicles because of pricing opacity, alignment concerns, fee and carry creep, and the loss of the right-tail upside that private equity is supposed to capture.
He walks through ten LP concerns, including conflicted pricing, diluted GP mindshare, worse economics on the same asset, forced elections with short response windows, synthetic DPI that flatters fund track records, and the cannibalization of fee-free co-investment. Scott also emphasizes that many LPs are not truly free to roll, since board approvals and legal reviews often take longer than the CV process allows. In his view, the best practice response is more transparency, better process, fairness opinions, and a clear test of whether the CV is truly the best solution.
Beyond CVs, Scott sees a broader liquidity bottleneck building zombie funds and forcing LPs to underwrite unrealized portfolios more carefully. He is wary of semi-liquid retail private equity products because, in his view, illiquidity is a feature, not a bug. At Texas Teachers, he says the team now spends far more time on partnership durability, leverage, and portfolio-quality checks because slower exits make manager selection and alignment matter more than ever.
Key takeaways
- Scott says CVs are not inherently bad, but LPs increasingly view them as conflict vehicles because the GP represents both seller and buyer.
- He argues that headline fee cuts can be misleading if the CV is priced on a higher cost basis, which can make LP economics worse than in the original fund.
- Scott says many LPs do not have a real choice to roll because board, legal, and timing constraints often force them to sell.
- He uses “synthetic DPI” to strip out CV and NAV-loan effects that can make fund track records look stronger than underlying value creation.
- Scott expects zombie funds to become a bigger industry problem as 2018 to 2022 vintages struggle to exit in a slower market.
- He says retail private equity may be the right strategy but the wrong structure because semi-liquid vehicles remove the illiquidity that makes the asset class work.
Notable quotes
“Illiquidity is a feature, not a bug of the private equity asset class”
How the episode opens
Continuation vehicles, continuation funds, GP led secondaries. I'm a strong believer that they are neither inherently good or inherently bad. Each vehicle is unique and bespoke and requires examination on its own.
With that comes some difficulties. If you go back when CVs took off the second wave 10 years ago, GPs treated it like a new invention. Historically, there's been three ways to exit a business, an IPO, a sale to a sponsor, or a sale to a strategic.
All of a sudden we had invented this fourth way. You would think LPs would be super excited by this and GPs were. They were metaphorically high fiving each other because they had just increased the exit routes by a third.
As I looked around and evaluated these on my own, as our team evaluated them, as I talked to my fellow LPs, it quickly became apparent that LPs were not nearly as enthusiastic as GPs expected them to be. Recently I've seen frustrations hit new highs. I chair the board of ILPA.
I spend a lot of time with some of the senior most LPs in this industry. When I hear things like CVs are the bane of my existence. There's a joke now that CV stands for conflict vehicle.
Some LPs say my heart sinks when a CV request lands in my inbox. I've even heard some say CVs are going to be the death of the industry.
I'm Ted Seides and this is Capital Allocators. My guest on today's show is Scott Ramsauer, head of private equity funds at the Teacher Retirement System of Texas, where he oversees the private equity portfolio inside a $250 billion pension plan. Scott joined Texas Teachers 16 years ago and has been instrumental in the private equity program's growth from six people and $7 billion in assets to 27 people and 33 billion today.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- continuation vehicles
- lp cost-basis math
- synthetic dpi
- fee renegotiation
- zombie funds
Companies and tickers mentioned
- AlpInvest
- ILPA
Watch the episode
Watch “Scott Ramsower: Continuation Vehicles from the LP Seat” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Capital Allocators with Ted Seides, this episode and its artwork belong to Ted Seides – Allocator and Asset Management Expert. Octagon is not affiliated with the show; this page is an independent summary.
