What Is a Continuation Fund?

Continuation funds barely existed a decade ago. Today they are central to how private equity works, and one of the more contested structures in the industry. The idea solves a real problem, but it carries a real conflict.

The problem it solves

A private equity fund has a fixed life of about ten years, after which it must sell its companies and return the money. But what if, as the clock runs out, one of its companies is still excellent, with years of growth ahead? Selling it into a weak market to meet the deadline destroys value for everyone.

What a continuation fund does

A continuation fund (or continuation vehicle) is the answer. The manager creates a new fund and uses it to buy the prized company out of the old fund. This does three things at once:

• The old fund's investors get an exit: they can take cash now, or roll their stake into the new fund and stay invested.
• The manager keeps running the asset it knows well, holding it for the extra years it needs, potentially through better conditions.
• New investors can put fresh capital into a proven company.

When it holds a single company, it is called a single-asset continuation fund, often used for a manager's trophy asset.

Why it matters now

With traditional exits harder since 2022, continuation funds have become one of the main engines of liquidity in private equity, accounting for roughly half of a record 240-billion-dollar secondary market in 2025, and projected to handle a large share of all private equity exits going forward.

The conflict to watch

Here is the catch, and it is serious. In a continuation fund, the same manager sits on both sides of the trade. As agent for the old fund's investors, it should want the highest possible price. As the operator of the new fund, it benefits from the lowest possible price, and it often locks in its own carried interest at the very price it helped set. That is a textbook conflict of interest.

None of this makes continuation funds bad; they solve a genuine problem, and single-asset vehicles for the best companies often price at almost no discount. But an existing investor facing a roll-or-cash-out decision should treat it with care: demand full disclosure of fees, carry and terms, and take independent advice rather than relying on the manager's. The structure is powerful precisely because the manager controls it, which is exactly why the investor must scrutinise it.