Beyond the exit: the rise of continuation funds

A market defined by liquidity pressure and longer hold periods

Continuation funds, also known as GP‑led secondary transactions, have moved decisively from a niche solution to a core feature of the private equity landscape. What began as a tactical response to constrained exit markets has, by 2026, become a structural mechanism for managing duration, liquidity and value creation across private capital portfolios.

The backdrop is familiar. While private equity deal activity rebounded strongly in 2025, exit conditions remained uneven and distributions to limited partners (LPs) continued to lag historical norms. Bain & Company estimates that more than half of global buyout‑backed companies have now been held for over four years[1], the highest level on record, intensifying pressure on general partners (GPs) to deliver liquidity without forcing sub‑optimal exits.

In this environment, continuation funds have emerged as one of the most effective tools for balancing competing objectives: providing LPs with optional liquidity, while allowing GPs to retain high‑conviction assets and extend their value‑creation strategies.

Record growth in GP‑led secondaries

The scale of the continuation fund market has expanded rapidly. According to Evercore, global private asset secondary transaction volume reached $226 billion in 2025, a record year, with GP‑led deals accounting for approximately $106 billion, up around 50% year‑on‑year[2]. Continuation funds represented a significant proportion of this GP‑led activity, underscoring their growing importance as a liquidity solution.

Independent research from CAIA further highlights the extent of this shift. In 2025, GP‑led transactions accounted for roughly 43% of total secondary market volume, with continuation vehicles representing the dominant structure within this segment. Nearly three‑quarters of the largest global private equity firms have now executed at least one continuation transaction, signalling broad acceptance across sponsors and investors alike[3].

What is notable in 2026 is not just the volume of transactions, but their increasing complexity. Multi‑asset continuation vehicles, larger single‑asset deals and cross‑fund transfers are becoming more common, reflecting both GP sophistication and growing secondary capital availability.

Why continuation funds remain attractive to GPs

For GPs, the strategic appeal of continuation funds has strengthened rather than diminished.

Traditional fund structures, typically constrained by ten‑year lifecycles, can force difficult timing decisions—particularly where assets continue to demonstrate strong operational momentum or remain exposed to volatile exit markets. Continuation vehicles allow sponsors to reset the investment horizon, inject fresh capital and pursue further value creation without crystallising value prematurely.

The rise of continuation funds is closely linked to the industry‑wide focus on realised returns, with “DPI becoming the new IRR” as LPs prioritise cash distributions over paper gains[4]. Continuation vehicles provide a mechanism to deliver partial liquidity while preserving upside potential.

In practice, continuation funds are increasingly used for so‑called “trophy assets”: resilient, high‑quality portfolio companies that sponsors believe still have meaningful growth or transformation potential but require additional time to reach optimal exit outcomes.

LP choice, scrutiny and governance expectations

From an LP perspective, continuation funds offer flexibility, but also demand greater scrutiny.

LPs are typically given the option to either roll their interest into the new vehicle or take liquidity at a negotiated price. While this optionality is attractive, LPs have become more sophisticated in assessing valuation methodology, conflicts of interest and process governance.

According to the CFA Institute, an estimated 80–90% of legacy investors elect to cash out in many continuation transactions, resulting in a materially different investor base in the new vehicle[5]. This dynamic has sharpened the focus on fairness, transparency and independent oversight.

Regulators and institutional investors alike are now placing heightened emphasis on:

• Independent valuations and fairness opinions
• Robust disclosure of GP conflicts
• Clear alignment of economic terms between selling and rolling LPs

Independent valuation and governance frameworks have shifted from “best practice” to a commercial and regulatory expectation in 2026, particularly as transaction sizes increase and regulatory scrutiny from bodies such as the SEC and FCA intensifies[6].

A structural feature of private markets

While continuation funds were once viewed as a temporary response to weak exit markets, evidence now suggests they are a permanent feature of the private equity toolkit.

William Blair forecasts that global secondary market volumes will remain elevated through 2026, supported by sustained LP demand for liquidity, record levels of dry powder dedicated to secondaries, and continued innovation in GP‑led structures[7].

At the same time, the narrative around continuation funds has evolved. Once associated with “zombie assets”, they are now widely used to house high‑quality, cash‑generative businesses with clear strategic rationale for extended ownership.

A structural shift, not a stop‑gap

As private equity enters a more disciplined phase, characterised by longer hold periods, higher capital costs and more discerning LPs, continuation funds are set to play an increasingly central role.

For sponsors, success will depend not just on execution, but on governance, transparency and alignment. For investors, continuation vehicles offer a valuable, if complex, mechanism to manage liquidity and exposure in an evolving private markets landscape.

What is clear in 2026 is that continuation funds are no longer an exception. They are now a defining feature of modern private equity portfolio management.

If you would like to discuss continuation funds, GP‑led secondaries or broader fund structuring considerations, please get in touch with us.

[1] Private Equity Outlook 2026: Gaining Traction | Bain & Company

[2] Private Secondaries Deals Surge to Record $226 Billion, Evercore Reports - Bloomberg

[3] The Continuation Vehicle Boom: Structural Shift or Liquidity Patch? | Portfolio for the Future | CAIA

[4] Private Capital in Focus: Trends to Watch for 2026 | MSCI

[5] Continuation Funds: Ethics in Private Markets | Part 1

[6] Continuation Vehicles in 2026 | Houlihan Capital

[7] williamblair-pca-secondary-market-report-survey-2026.pdf