PE Firms Increasingly Consider Continuation Vehicles
Nearly 40% of private equity general partners expect to consider using continuation vehicles (CVs) over the next two years, according to a study by Bain. This structural shift, used to hold assets longer, is expected to increase demand for junior talent skilled in fund structuring, portfolio management, and complex transaction support.
- GP-led secondary transaction volume, primarily composed of continuation vehicles, reached $115 billion in 2025, accounting for about 43% of the total secondary market volume. The use of these vehicles has surged due to a need for investor liquidity and longer timelines for value creation in portfolio companies. - Continuation vehicles have become a more common exit strategy for private equity firms, representing 14% of all PE exits in 2024, a significant increase from 5% in 2020 and 2021. Projections suggest they could account for as much as 20% of all private equity exits in the future. - These structures are typically used for a private equity firm's best-performing assets, often called "trophy" or "crown jewel" assets, to extend the holding period beyond a traditional fund's lifecycle. This allows the firm to continue managing the asset with the goal of realizing greater long-term value. - Limited Partners (LPs) in the original fund are given the option to cash out their investment or roll their stake into the new continuation vehicle, providing them with liquidity and flexibility. - Single-asset continuation vehicles are common for high-conviction assets, while multi-asset vehicles, which bundle several portfolio companies, are also utilized and can offer diversification. Multi-asset deals accounted for nearly 59% of continuation fund transaction volume in 2023. - A key challenge in structuring these deals is the inherent conflict of interest, as the General Partner (GP) acts as both the seller and the buyer. To mitigate this, independent third-party valuations are typically required to ensure a fair price. - To further align interests between the GP and the new investors, it is standard for the GP to roll over 100% of their accrued carried interest from the original fund into the continuation vehicle. - The growth of continuation funds has been fueled by a challenging environment for traditional exits like IPOs and M&A, as well as an impending "maturity wall" where a large number of funds are nearing the end of their 10-year lifecycles.
