Private equity has long thrived on the promise of a well-timed exit. Yet increasingly, we’re seeing a shift: instead of selling their assets according with the predetermined timelines, GPs are opting to hold on longer – via continuation funds.

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Continuation funds, also known as GP-led secondaries, became popular after the 2008-09 financial crisis, when PE firms found themselves stuck with assets they couldn’t sell. These assets then were rolled over into new vehicles with new investors and new distribution and fee structures.

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However, in recent years, a new trend emerged where now profitable and promising companies were being sold into continuation funds in order to give investors more time to maximize their profits instead of forcing the sale of the company at the end of the fund’s term. LPs are given an option to exit or to continue holding within the structure of a new fund.

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At first glance, this may seem like a convenient detour from the classic PE lifecycle. But look closer, and you’ll find an idea that is more nuanced, more strategic, and potentially game-changing.

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What’s Driving the Surge?

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Over the last few years, the number of continuation vehicles has exploded. Why?

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• Mature assets, more growth: GPs believe many of their crown jewels still have runway – but traditional fund timelines are forcing the exit.

• Liquidity solutions for LPs: Some LPs want out, others want in deeper. Continuation funds provide both options.

• Tough exit environment: IPO markets remain tepid. Strategic buyers are cautious. Continuation funds offer time and flexibility.

 

According to the investment bank Jefferies, sales to continuation funds accounted for 13% of all private equity exits globally in 2024, up from 5% in 2021.

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So, What Is a Continuation Fund?

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In simple terms: it’s a new vehicle created by the GP to acquire one or more portfolio companies from an existing fund. LPs in the original fund can either:

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• Cash out (a liquidity option), or

• Roll over their investment into the new fund (to continue exposure).

 

New investors are also often brought in, bringing fresh capital to back up the next phase of growth.

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What This Means for Investors?

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From a valuation lens, continuation funds pose unique challenges and opportunities:

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• GP economics shift: Carry structures can change dramatically, requiring thoughtful valuation of carried interest and management fees in a new context.

• Secondary market pressure: Prices are no longer theoretical. Secondary investors scrutinize valuations deeply – especially when sponsor-led.

• Estate and tax planning implications: If an LP or GP interest is being transferred or gifted, timing around continuation fund transactions can significantly impact value.

 

Questions Worth Asking

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As continuation vehicles become more common, it’s worth pausing to ask:

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• Are these vehicles an elegant solution – or a way to defer tough exit decisions?

• Do they genuinely serve LPs – or do they tilt too far in favor of the GP?

• How should interests in a continuation structure be valued differently from traditional structure?

• What are the options for a GP or LP investor who has already transferred their interests from the fund, prior to a continuation fund even being thought of? Would they be forced to take the exit route or could they roll over their interests and potentially double or triple their projected profit, since the idea of a potential continuation fund was not known or knowable at the time of the transfer?

 

Final Thoughts

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Continuation funds aren’t a loophole. When used thoughtfully, they reflect conviction – not just convenience. But they do require a different lens when it comes to valuation, incentives, and governance. And as these deals proliferate, so too does the need for clarity – on structure, value, legal aspects, and the long-term alignment of interests.

It’s an exciting chapter in the evolution of private equity. But one that demands a closer look and thorough understanding.

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