Increasingly, private equity firms are offloading companies they own at an unprecedented rate onto themselves.
The first half of 2025 has seen a significant surge in the use of Continuation Funds, reaching an impressive $42 billion, according to data from investment bank Jefferies. This trend can be traced back to the slowdown in traditional exit strategies like Initial Public Offerings (IPOs), strategic sales, and sponsor-to-sponsor buyouts, which have been impacted by volatile equity markets, higher interest rates, tariff uncertainties, and a weak Mergers and Acquisitions (M&A) climate.
Continuation funds, a GP-led secondary market solution, allow private equity firms to move portfolio companies from older funds into new continuation vehicles they still manage. This enables original limited partners (LPs) to cash out or roll their interests into the new fund, preserving exposure and preventing forced sales at discounts. The growing popularity of this strategy has transformed continuation funds from distressed exit options into standard portfolio management tools.
Key factors driving the surge include market uncertainty, with the IPO pipeline remaining weak and acquisition activity low, forcing firms to seek alternative liquidity routes. Continuation fund sales now represent about 13% of global PE exits, up from 5% in 2021, demonstrating the growing acceptance and scale of this exit route.
Other contributing factors include increased capital availability and competitive pricing for quality continuation vehicles, the adoption of tiered carry structures, organizational cost caps, and transparent governance measures, addressing investor concerns and improving market standards. However, some observers caution that heavy use of continuation funds raises concerns over the recycling of assets at possibly inflated valuations due to sponsor control and governance risks.
Despite these concerns, the surge in continuation funds provides liquidity and portfolio control flexibility to PE firms, reshaping exit strategies industry-wide. The trend is expected to continue as firms navigate the challenging market conditions and seek innovative solutions to exit their investments.
- The increasing popularity of continuation funds in private-equity, such as those utilized by private equity firms to move portfolio companies from older funds into new continuation vehicles, can be attributed to factors like market uncertainty, weak IPO pipelines, and low acquisition activity, which force firms to seek alternative liquidity routes.
- As a result of the surge in continuation funds, originally perceived as distressed exit options, they have evolved into standard portfolio management tools in the world of finance and investing, providing PE firms with vital liquidity and portfolio control flexibility, even as they grapple with challenging market conditions.
