The rise of continuation funds in private equity secondary markets

Continuation funds are increasingly used in private equity (PE) as a mechanism to extend ownership of high-performing portfolio companies beyond the traditional fund life cycle. These funds enable general partners (GPs) to transfer one or more assets from an existing fund into a newly created vehicle capitalized by secondary investors, while offering limited partners (LPs) the option to either cash out or roll over their interests. As competition for premium assets intensifies, continuation funds have become a vital tool for portfolio optimization, liquidity management, and maximizing long-term value creation.

Why continuation funds are gaining popularity.

Continuation funds address several structural challenges within private equity:

• Extending holding periods → Allows GPs to retain control of high-growth assets beyond the typical 7–10-year fund timeline.

• Providing LP liquidity → Existing LPs can monetize their investments without forcing premature exits.

• Maximizing value creation → Enables sponsors to continue scaling assets without selling into unfavorable market conditions.

• Creating optionality → LPs choose between taking distributions now or maintaining exposure to future upside.

• Driving competitive positioning → GPs leverage continuation vehicles to avoid auctions and maintain direct control over prized assets.

This flexibility makes continuation funds attractive in sectors like technology, healthcare, and infrastructure, where assets require longer value creation horizons.

How continuation fund structures work.

Continuation funds are typically structured through secondary market transactions involving GPs, existing LPs, and new investors:

1. Asset selection

   • GPs identify one or more portfolio companies with strong growth prospects.

2. Valuation and pricing

   • An independent valuation is obtained to establish a fair market price for transferring assets into the continuation vehicle.

3. Capital formation

   • Secondary investors commit new capital, while existing LPs decide whether to cash out or roll over into the new fund.

4. Transaction execution

   • The assets move from the existing fund into the continuation vehicle, which often secures fresh financing to drive expansion.

By resetting the investment timeline, continuation funds allow GPs to align holding periods with asset-specific growth strategies.

Benefits for stakeholders in continuation fund transactions.

Stakeholder	Benefit	Key Consideration
General Partners (GPs)	Extend control over high-performing assets and generate carried interest sooner	Must demonstrate fair valuations to avoid conflicts
Limited Partners (LPs)	Choose between liquidity today or continued participation in future upside	Requires transparent pricing and clear disclosure
Secondary investors	Gain exposure to proven, de-risked portfolio companies	Assess alignment with GP strategy and growth potential

Well-structured continuation vehicles balance the interests of existing LPs, new investors, and sponsors to avoid governance disputes.

Key challenges and risks in continuation fund deals.

Despite their advantages, continuation funds introduce unique execution and governance complexities:

• Valuation disputes → Conflicts may arise if LPs question asset pricing, especially without competitive auctions.

• Conflict of interest risks → GPs act as both sellers (on behalf of the old fund) and buyers (on behalf of the new vehicle).

• Regulatory scrutiny → Securities regulators increasingly review fairness and disclosure practices in GP-led secondaries.

• Liquidity mismatches → Secondary investors must manage long-term hold horizons, especially for concentrated assets.

Mitigating these risks often requires independent fairness opinions and transparent stakeholder communication.

Continuation funds vs. traditional exit strategies.

Aspect	Continuation Fund	Traditional Sale / IPO
Control	GP retains control of the asset	Ownership transferred to buyer or public shareholders
Liquidity	Optional for LPs	Full monetization for all LPs
Valuation certainty	Based on independent appraisal and negotiated pricing	Determined by market demand
Hold period	Extends ownership for 3–7 years	Exit occurs immediately
Value optimization	Preserves potential upside	Locks in current market pricing

Continuation vehicles are increasingly favored when market conditions are volatile or when high-growth assets have not yet reached peak valuation potential.

Examples of continuation funds in private equity.

• TPG’s recapitalization of portfolio assets (2022) → Used a continuation vehicle to extend ownership of several high-performing technology investments.

• Advent International’s €1.8 billion continuation fund (2021) → Offered LPs rollover options for top-performing healthcare assets.

• Hellman & Friedman’s acquisition of Hub International (2018) → Structured a multi-asset continuation vehicle to retain ownership and scale the business further.

These deals illustrate how continuation funds provide flexibility, optionality, and liquidity for multiple stakeholders simultaneously.

Continuation funds are reshaping private equity secondary markets.

As secondary investors deploy larger pools of capital and GPs seek to maximize asset-level value creation, continuation funds have become a mainstream strategy for managing liquidity, extending holding periods, and optimizing portfolio performance.

With growing regulatory oversight and heightened demand for transparency, sponsors must ensure robust governance, independent valuations, and stakeholder alignment to sustain credibility in GP-led secondaries.

In an increasingly competitive M&A environment, continuation funds have evolved into a key driver of private equity deal innovation and exit flexibility.

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