“A continuation fund is a special investment vehicle created by a private equity or venture capital manager to buy one or more portfolio assets from an older fund that is ending. It lets managers keep high-potential assets longer to grow value, while giving old investors a choice to cash out or roll over.” – Continuation fund – Investment
Continuation funds exist because the standard closed-end private equity model can force a sale before the investment story is finished. When a fund approaches the end of its life but still owns an asset with further upside, the manager can transfer that asset into a newly raised vehicle and buy more time to compound value1,6. The practical consequence is simple: the manager keeps control, the business gets additional capital and attention, and older investors are not trapped in a structure that no longer matches the asset’s maturity profile2,4.
That bargain is why continuation funds have moved from a niche workaround to a mainstream secondary structure. They are usually described as GP-led secondaries because the general partner, not the market, initiates the transaction and remains in charge after the asset moves10,18. In a typical deal, the legacy fund sells one or more portfolio companies to the new fund at a negotiated price, while limited partners in the old fund choose whether to cash out or roll into the continuation vehicle1,3,21. New capital, often from specialist secondary buyers, fills the gap left by investors who want liquidity5,14.
How the structure works
The mechanics matter because continuation funds are not simple internal transfers. They are new investment vehicles with their own documents, economics, investor base and holding period4,19. A sponsor identifies an asset, or a small cluster of assets, that still has growth runway but would be awkward to sell quickly under the legacy fund’s timetable7,17. The asset is then sold to the continuation fund, usually after a valuation process or fairness review, and the proceeds are distributed to those investors who elect to exit7,18,20.
The old investors generally face a three-way decision set: sell for cash, roll their interests into the new fund, or in some cases do a mix of both1,5. That optionality is central to the appeal of the structure because different investors have different time horizons and liquidity needs2,12. A pension fund that wants distributions can leave; an investor that still believes in the sponsor’s thesis can stay exposed; and a new buyer can step in at a price that reflects the asset’s current stage rather than the legacy fund’s remaining life3,6.
Continuation funds are often structured as single-asset or multi-asset vehicles4,16. Single-asset continuation funds are used for high-conviction, often trophy, assets that the sponsor wants to retain for longer16. Multi-asset versions can spread risk across several companies and are sometimes used in broader wind-down or liquidity management transactions4,16. In venture capital, the same logic can apply when a company needs more time to reach a sale or IPO and the original fund is nearing maturity13.
Why sponsors use them
The economic case for a continuation fund is that timing and value realisation rarely line up neatly with fund terms. Traditional private equity funds are typically closed-ended and last roughly 8 to 12 years, which can create pressure to exit even when a company still has operational or strategic upside18. A continuation fund lets the manager delay the sale, continue supporting the business and potentially exit in a more favourable market later6,19. It can also supply fresh growth capital for add-on acquisitions, product development or operational turnaround work10,14.
There is also a portfolio-management motive. Some assets are simply too good to sell at the wrong moment, particularly when a sponsor believes the market is underpricing the next phase of growth6,21. In that sense, continuation funds are not merely a liquidity patch; they are a way of separating asset-level conviction from fund-level chronology9,16. That separation matters in private markets because a fund is a legal wrapper, but the operating company has its own pace, which may not respect the original fund term1,8.
For limited partners, the appeal is equally practical. A continuation fund can solve the end-of-life problem without forcing every investor into the same decision2,12. Some investors want cash after a decade of illiquidity; others prefer to stay with a winner rather than crystallise gains too early1,3. The structure therefore offers a controlled exit with a continuation option, rather than a binary sale or hold decision imposed on the whole fund4,14.
Pricing, incentives and governance
The hardest issue is valuation. Because the same sponsor sits on both sides of the transaction, continuation funds raise obvious conflict-of-interest concerns9,15,21. The asset must be priced fairly enough that sellers are not underpaid, but also attractively enough that the new vehicle can generate a return for incoming investors7,22. That tension is why transactions often rely on independent advisers, fairness opinions, LP advisory committee review and some form of competitive process17,20,21.
Economically, the sponsor’s incentives are often reset in the new vehicle. Fees and carried interest are typically recalibrated to the continuation fund’s starting net asset value, not the original purchase price, so the sponsor is rewarded for creating new value from the point of transfer onward7,15. That reset can be sensible because the original fund has already absorbed early-stage risk, but it is also controversial because investors may worry about paying twice for the same asset management services9,22. The debate is not whether incentives should exist, but whether they are transparent and proportionate to the remaining risk15,21.
That governance question is why continuation funds attract unusually close scrutiny from sophisticated investors. The manager is effectively deciding which assets deserve an extension, what price should be paid and which investors get liquidity, all while remaining the asset’s future steward6,9,12. Supporters argue that aligned managers can unlock more value and reduce forced selling4,10. Critics argue that the structure can disguise a weaker exit, delay recognition of underperformance or shift risk from existing investors to a new buyer base9,22.
Major schools of thought
The first school sees continuation funds as a rational evolution of private markets. On this view, they are a response to a genuine maturity mismatch between long-lived businesses and finite fund lives1,18. A good asset should not be sold simply because a fund term is expiring, and a better-timed exit can benefit both the sponsor and the investors who choose to stay6,14. From this perspective, continuation funds improve capital allocation by letting high-quality companies receive more time and capital.
The second school is more sceptical and frames continuation funds as a liquidity device that papers over structural frictions. Here, the concern is that sponsors may use the structure to avoid admitting that a conventional exit is unavailable, while simultaneously charging fresh fees on assets already known to existing investors9,15,22. That critique is especially strong when valuation is opaque or when investors do not have a realistic ability to reject the transaction9,21.
The third school treats continuation funds as a market-clearing mechanism. Under this view, the new vehicle creates a price and a choice, which is preferable to forcing everyone into the same outcome2,3. Investors who want out can take cash; those who want continuation can roll; and the asset gets a market-tested reset with new capital and a longer runway4,20. This position does not deny conflicts, but it argues that conflicts can be managed through disclosure, process and independent pricing rather than eliminated entirely15,21.
Why the term still matters
Continuation funds matter because they are changing the relationship between time, ownership and liquidity in private markets. They have become a large and growing slice of secondary activity, and the market now treats them as a standard exit tool rather than an exotic exception6,10,11. That shift reflects a broader change in private equity and venture capital: managers are increasingly judged not only on how they buy assets, but on how they manage the timing of exit and the quality of the liquidity offered to investors14,18.
They also matter because they reveal how private capital adapts when the original fund structure no longer fits the underlying asset. A continuation fund is, in practical terms, a negotiated second life for a portfolio company, a way to preserve upside while giving investors a real choice1,12,19. That combination of optionality, extended ownership and renewed capital explains why the structure has spread across private equity and, more selectively, venture capital13,22. It remains controversial precisely because it works: the better the asset, the more valuable the right to keep holding it becomes6,16.
References
1. [PDF] The Rise of Private Equity Continuation Funds – Chicago Booth – https://www.chicagobooth.edu/research/stigler/research/-/media/5d46328c68e0466b9787f42d98275f3b.ashx
2. The Rise of Continuation Funds in Private Equity – EQT Group – 2025-03-04 – https://eqtgroup.com/en/thinq/private-markets/continuation-funds-private-equity
3. Continuation Funds: What They Are and Why They Matter – 2026-02-26 – https://www.investing.com/analysis/continuation-funds-what-they-are-and-why-they-matter-200675741
4. PE exit strategies: Continuation funds and carve-outs – Grant Thornton – 2025-09-09 – https://www.grantthornton.com/insights/articles/pe/2025/continuation-funds-and-carve-outs
5. [PDF] Selling to Yourself: Continuation Funds in Private Equity – CDN – https://bpb-us-w2.wpmucdn.com/u.osu.edu/dist/8/7843/files/2026/03/Continuation-Fund-paper-March-22-2026.pdf
6. The Rise of Private Equity Continuation Funds – 2024-06-18 – https://corpgov.law.harvard.edu/2024/06/18/the-rise-of-private-equity-continuation-funds/
7. What is a continuation fund: definition, vehicles, pros & cons – Moonfare – 2024-10-20 – https://www.moonfare.com/glossary/continuation-fund
8. Private equity’s new frontier: The promises and challenges of … – 2025-06-02 – https://securities.cib.bnpparibas/private-equitys-new-frontier-the-promises-and-challenges-of-continuation-funds/
9. Players & Power Dynamics in Private Equity Continuation Funds – 2024-12-10 – https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5118217
10. Continuation funds: What are they, and why now? – Schroders – 2025-03-11 – https://www.schroders.com/en-us/us/institutional/insights/continuation-funds-what-are-they-and-why-now-/
11. Selling to Yourself: Continuation Funds in Private Equity – https://www.nber.org/system/files/working_papers/w34471/w34471.pdf
12. Continuation Funds: What You Need To Know | Insights – Skadden – 2024-05-22 – https://www.skadden.com/insights/publications/2024/05/continuation-funds-what-you-need-to-know
13. Continuation Funds: A Strategic Pivot Towards Liquidity in … – 2024-10-07 – https://evergreengavekal.com/blog/continuation-funds-a-strategic-pivot-towards-liquidity-in-venture-capital/
14. [PDF] Guide to Continuation Funds – investir.ch – https://www.investir.ch/app/uploads/2025-06-23-guide-to-continuation-funds_-a-market-that-has-come-of-age.pdf
15. Continuation Funds: Ethics in Private Markets | RPC – 2025-09-15 – https://rpc.cfainstitute.org/research/reports/2025/continuation-funds
16. The Continuation Vehicle Boom: Structural Shift or Liquidity Patch? – 2026-02-11 – https://caia.org/blog/2026/02/11/continuation-vehicle-boom-structural-shift-or-liquidity-patch/
17. Continuation Funds: Structure, Benefits, and GP Considerations – 2026-02-03 – https://pipelineroad.com/blog/continuation-funds-guide
18. Mainstream, Not Marginal: What’s Next for Continuation Funds – 2026-04-08 – https://www.skadden.com/insights/publications/2026/04/insights-april-2026/mainstream-not-marginal
19. Making the Most of Continuation Funds – https://www.lexology.com/library/detail.aspx?g=0395da38-86fa-4e04-8fb1-a9efc8dd40dc
20. Frequently Asked Questions – 2026-05-20 – https://ctacquisitions.com/what-is-a-continuation-fund/
21. What is a Continuation Fund? – Sadis & Goldberg LLP – https://www.sadis.com/what-is-a-continuation-fund/
22. Riding the continuation fund trend in venture capital – 2024-05-07 – https://www.axios.com/2024/05/07/venture-capital-continuation-funds
23. Spotlight on Continuation Funds – https://www.kirkland.com/-/media/content/bring-down/kirkland2/fundsfeb2022.pdf
24. Redefining private equity: How continuation investments are disrupting the buyout market – 2025-08-19 – https://www.schroders.com/en-us/us/institutional/insights/redefining-private-equity-how-continuation-investments-are-disrupting-the-buyout-market/
25. VC’s continuation fund barriers – 2025-09-11 – https://www.secondariesinvestor.com/vcs-continuation-fund-barriers/
