A growing market for injecting fresh capital into aging energy assets owned by private equity firms through continuation funds has attracted major hedge funds, including Baupost Group and Elliott Investment Management, according to a report by Bloomberg.
These investors are leveraging continuation funds to capitalise on opportunities in an increasingly challenging sector, marked by volatile commodity prices, ESG concerns, and shrinking asset values.
Continuation funds, which allow private equity firms to transfer assets from one fund to another, backed by fresh capital, are gaining in popularity as a means to extend the lifecycle of hard-to-sell investments with several firms, including Kayne Anderson Capital Advisors, which restructured its ownership in energy producer Kraken Resources across three funds, creating a $911m continuation vehicle led by Baupost.
Similarly, Ridgewood Energy moved its Gulf of Mexico assets into a $500m continuation fund supported by Elliott. Other notable deals include Elliott’s backing of Riverstone Holdings’ $815m continuation fund for ILX Holdings and Quantum Capital Group’s fund for HG Energy.
The continuation fund market for energy assets remains a niche within the broader $50m secondary market, although Baupost and Elliott have seized the opportunity to invest at discounted prices, negotiating deals that provide sponsors with much-needed liquidity.
