Private Equity Has Magic Tricks to Make Money in Every Bad Situation

by Oren Klaff, exclusive for Bull Street

I talk to a lot of guys who trade public stocks about the kind of returns my colleagues and I target in private equity which are a healthy 4-5X in every deal.

Then the groaning starts.

Oh, but you have all this RISK.

You don’t have LIQUIDITY.

There’s no RELIABLE INFORMATION to trade on.

Yeah, Private Company Investing is the mixed martial arts of the finance world. It’s not for everyone.

Compared to the Trader-class, I feel like that weird guy who lives on a boat to “save money,” and insists it’s a “cool lifestyle.”

For sure, investing in private deals is risky because many haven’t got their full act together..

Typically, you have incredibly cool products (cold fusion, robots, superdrugs, MotoGP teams etc) but are missing a few things you’d like to see in a large company like …. governance, reporting functions, maybe a CFO.

No CFO? I guess I’m not doing a great job of selling private equity here.

But the fantastic part of building private companies is that it puts me in the position of being an investment banker: finding creative solutions for tough money problems.

This is why every presentation I give has the same headline:

BE NOT THE INVESTOR;
BE THE BANKER.

But sometimes my private equity colleagues take the banking and magic tricks too far.

For example, Private Equity has recently figured out how to “exit” an investment without actually selling it to the outside world.

That sounds absurd.

Although when things sound absurd in PE, it’s usually where the money is.

How can you claim an EXIT if no one bought the company?

Let’s dive in!

The way to sell a deal you’re completely jammed up in is called a continuation vehicle.

Which sounds like the “vehicle” a billionaire actor gets into after running his Rolls Phantom into a ditch.

Here’s how this all works:

A private equity sponsor owns a company that is hitting its 5-7 year hold period. Time to sell!

But the exit market is weak.

There’s no one to buy it.

WHo is going to buy this turd I mean, gem?

NOBODY.

Because there are more than 30,000 companies jammed up in the PE exit pipeline.

SOLUTION:

We need to sell this company to ourselves.

[insert magic here]

And now we have engineered an EXIT.

There was a buyer and a seller … technically an “exit.”

So instead of selling the company to an outside buyer, the sponsor moves it into a new vehicle.

Meaning the PE firm is the seller, the buyer, the manager, the storyteller, the fee collector, and the banker. They also serve popcorn at this horror movie.

Other than that, totally clean.

This matters because continuation vehicles are no longer some obscure plumbing trade for people who can afford $2500/hour securities attorneys. (At least, that’s what I pay …)

Fund-manager-led secondary transactions hit $106 billion in 2025, up from $70 billion in 2024.

And private equity firms are sitting on more than 30,000 unsold portfolio companies.

That is the pressure point.

The old model was simple:

Buy, improve, sell, distribute cash.

The new model, under stress, looks different:

Buy, hold too long, struggle to exit, create an internal market, reset the clock, preserve control, and call it liquidity.

That is the clean story.

The Game of Money story is darker.

When markets freeze, price discovery disappears.

There is no publicly available data.

No open auction everyone can observe.

No outside buyer saying, “Actually, this asset is worth 30% less than your model says.”

Instead, price gets manufactured through the process.

Which is probably why public guys stay on their end of the pool, and private guys stay in their end.

Because when public markets break, everyone can see it.

When private markets break, insiders build new structure with financial magic tricks.

Continuation vehicles are what “magic + structure” looks like:

Convert an unsold asset into a priced event without asking the market to price it.

We should all be watching this closely, but honestly, with everyone in the market watching the US vs. Paraguay game, we missed it.

So keep an eye out for continuation vehicles.

Because if a PE firm tells you they “exited” the asset, your first question should be:

Exited to who?

And if the answer is, “My cousin Vinnie,” check your wallet.