Continuation funds have become one of the more consequential structural innovations in private equity over the last several years, which makes it worth being direct about what they are and what they are not.
The mechanics are straightforward. A general partner takes an asset from a fund approaching the end of its life, transfers it into a new vehicle, and offers existing limited partners the choice to cash out or roll their interest forward. New investors come in, providing the liquidity that exiting LPs need. The GP retains management of the asset, often under the same carry structure, with an extended timeline to pursue the exit that hasn’t materialized yet.
Between 2016 and 2020, contributions to continuation funds represented about 6% of distributions from mature private equity funds. From 2021 through 2025, that share rose to an average of 20%. That is not a marginal change in behavior. It is a structural shift in how the industry manages assets it cannot move.
The argument for continuation funds is real. Some assets genuinely have more value to be created, and a fund maturity date is an arbitrary constraint on when that value gets realized. Forcing a sale into a market that isn’t ready to pay full price is not obviously better for anyone, including the LPs who would receive the proceeds. A well-governed continuation vehicle, with proper third-party valuation, competitive pricing, and genuine LP optionality, can be a legitimate solution to a timing problem.
The argument against them, or at least the reason they deserve scrutiny, is also real. The GP in a continuation fund transaction is simultaneously the seller and the buyer, setting the price at which they transfer their own asset to a vehicle they will continue to manage. The conflict is inherent. Third-party opinions and competitive processes help, but they do not eliminate the information asymmetry between a manager who has owned an asset for six years and an LP investor being asked to make an election in a compressed window. LP fatigue with this dynamic was visible at SuperReturn this year, where governance concerns around continuation vehicles came up repeatedly across panels focused on LP-GP dynamics.
The more important question isn’t whether continuation funds are good or bad in the abstract. It’s what the prevalence of them tells you about the assets inside them. A portfolio company that has been held for seven years, moved into a continuation vehicle, and is still waiting for an exit is, by definition, an asset that the market has not yet been willing to pay the price the GP believes it deserves. That may mean the GP is right and the market will eventually come around. It may also mean the original underwriting was optimistic and the continuation structure is a way of deferring the moment of reckoning without eliminating it.
LPs asking harder questions about continuation fund governance are right to do so. But the more fundamental question is simpler: would this asset clear the market today at a price that represents genuine value creation, if the GP had to sell it rather than transfer it? The answer to that question is what a continuation fund is, in most cases, designed to avoid finding out.
