TLDR:
A continuation fund (also called continuation vehicle, CV, or “GP-led secondary”) is a private equity structure where the GP transfers one or more portfolio assets from an existing fund into a new vehicle managed by the same GP. Existing LPs in the older fund have the option to: cash out (sell their interest in the asset for cash), roll over (commit to the new vehicle on similar terms), or status quo (in some structures, remain in original fund—though this is rare). Continuation funds have grown rapidly from niche transactions to a mainstream PE liquidity solution.
Why Continuation Funds Exist
Standard PE fund structures have fixed terms (typically 10 years plus extensions). When a fund nears the end of its term but holds valuable assets the GP wants to continue managing—or believes more value can be created—a continuation fund offers a solution. Reasons GPs pursue CVs: high-conviction assets the GP wants to hold longer, lack of attractive M&A exit opportunities at acceptable valuations, ability to deploy follow-on capital that the original fund cannot, and creation of new fee streams (management fee on the CV is fresh). Reasons LPs may roll: continued exposure to high-quality assets, GP track record on these specific assets, and avoidance of taxable gain recognition.
Conflicts and Best Practices
Continuation funds create inherent conflicts of interest. The same GP advises both: the selling fund (where the GP fiduciary duty is to maximize sale value—high price) and the new fund (where the GP fiduciary duty is to obtain assets at attractive terms—low price). Industry best practices address this: independent valuation by accredited third parties, LP advisory committee approval of pricing and process, “Status Quo Option” for existing LPs (continue or cash out at the determined value), competitive auction process to test market price, and ILPA-published guidance on CV processes. Despite this, conflicts remain a regulatory concern—SEC has scrutinized CV practices.
Growth and Market Impact
Continuation fund volume grew from <$10B annually in 2018 to >$50B by 2024. Major secondary investors (Lexington, HarbourVest, AlpInvest, Coller Capital) are buyers of LP interests in CVs. The structure has become particularly common for “trophy assets”—exceptional portfolio companies that have outperformed and that GPs want to continue managing. Critics worry about: limited LP information, conflicts despite safeguards, increased manager compensation through fresh fee streams, and complexity for LP portfolio analysis. The structure is here to stay but evolution toward better governance and disclosure continues.