MHR Fund Management, a New York-based special situations investor, has completed an unusual secondaries transaction, transferring holdings of publicly traded stock into a continuation vehicle (CV).

The firm has moved its equity investments in Lionsgate and Telesat, previously held in a pre-GFC closed-end private fund, into the CV, according to public filings.

The transaction resets the clock on the investments, allowing MHR to retain the assets beyond the original life of the fund. MHR holds sizable equity positions in both Lionsgate and Telesat  and has viewed these holdings more as private equity-style investments rather than part of a liquid, tradable public equity strategy, according to a source familiar with the situation. MHR’s sizable position gives the manager valuable governance rights and extending the hold period via a CV will allow the firm to capture additional upside, the source said.

MHR declined to comment.

Putting publicly traded assets into a CV is unusual, noted Ed Dartley, a partner and practice area leader in K&L Gates’ asset management and investment funds practice. CVs are more commonly used to extend the hold period of illiquid assets such as private equity positions or private credit positions.

However, the law firm has seen public stock transferred to CVs before. “I don’t expect putting publicly traded securities into CVs to become a mainstream trend,” said Sasha Burstein, also a partner and practice area leader in K&L Gates’ asset management and investment funds practice.  “When these transactions do occur, they’re typically designed to address highly specific commercial or structural considerations rather than reflecting a broader shift in the market.”

For larger positions in publicly traded companies, an immediate sale into the public market may not be the optimal outcome, even when the manager knows that the fund life is coming to an end and investors expect money to be returned. Putting the assets into a CV could give managers the flexibility to manage the timing and execution of an exit while helping minimize unnecessary market disruption, Burstein said.

A fund that wants to exit public holdings can sell down shares over time and be subject to market fluctuations or it can dump the shares at once, potentially causing a dip in share price and negatively impacting the GP’s carry, said Adam Tope, a partner at DLA Piper, who specializes in advising on fund formation and secondaries deals.

Many managers also hold board seats and selling down ownership stakes could cause them to lose these, according to Tope. Transferring the assets into a CV allows the GP to maintain control, he added. While CVs appear to provide benefits in a variety of scenarios, a private fund secondaries transaction involving publicly traded assets also presents its own unique challenges. Many secondary buyers can’t purchase liquid securities under their fund docs, and those that can may not be well equipped to value public securities, Tope said.

Meanwhile those that can buy into a deal like this will usually expect a discount. “If you’re dealing with a publicly traded stock but it’s thinly traded, from my perspective, I might want to get an independent valuation because the market may not really be reliable in terms of pricing,” added Dartley.