Over the past decade, the GP-led secondaries market has undergone a dramatic transformation, largely propelled by the rise of continuation funds — a once niche solution that has become a cornerstone of private equity exit and portfolio management strategies. First emerging in the aftermath of the Global Financial Crisis, continuation funds helped GPs manage suboptimal liquidity conditions to extend the lives of aging funds and assets.
In these early iterations, these transactions often traded at significant discounts, reflecting tepid market appetite for mature assets with longer time horizons. Since then, the market has matured significantly. Continuation funds are now widely viewed as a legitimate and strategic tool for both liquidity and portfolio management. Across both single-asset and multi-asset structures, these deals now make up roughly 79% of total GP-led secondaries activity.
Muted M&A and IPO markets in recent years have certainly helped catalyze this growth. Amid constrained exit conditions, continuation funds have enabled GPs to hold onto high-performing assets while providing liquidity to existing investors. In 2024, for example, continuation vehicles consumed 13% of PE exit activity, up from 5% in 2020 and 2021.
With more than $3 trillion in unrealized value sitting in global buyout portfolios, these structures are poised to continue playing a fundamental role in helping GPs and LPs navigate the lingering liquidity hangover from frothy ZIRP era dealmaking. This said, the case for continuation vehicles goes beyond exit market dislocations. Despite starkly different macroeconomic and liquidity backdrops, both 2021 and 2024 ranked among the most active years for GP-led deals, underscoring the nature of CVs as an all-weather portfolio management tool.
These vehicles give GPs a way to retain high-performing assets without being constrained by fund timelines. Where firms once may have exited assets prematurely to meet liquidity demands — often passing upside to buyers — they can now extend ownership to capture more of the gains themselves, while still offering LPs the option to cash out. Moreover, in an environment of elevated entry prices, the opportunity to compound value in a familiar asset holds clear appeal over backing untested management teams and unproven value creation theses.
Further, much like co-investments, continuation vehicles are becoming a strategic relationship-building tool for GPs. By offering targeted access to deals, they allow firms to engage new LPs, tap into fresh capital, and lay the groundwork for future primary fund commitments. As continuation funds gain broader acceptance and the market grows more sophisticated, the GP-led secondaries space is well-positioned for continued expansion across several dimensions.
For one, while deal flow in the middle and lower middle market has picked up, widespread adoption of continuation funds in these segments remains limited. As more middle market sponsors look to retain upside they’ve historically ceded through traditional exits, proliferation of CVs downstream into the buyout universe will continue.
With larger buyout shops blocked from accessing opportunities they’ve traditionally sourced through traditional M&A, partnering on a continuation fund may be the only path to still gaining exposure to those returns. It’s no surprise then, that a growing cohort of buyout sponsors and large alternative asset managers are raising dedicated capital to invest in other sponsors’ continuation vehicle transactions.
Further, to date, the bulk of continuation vehicles (and broader GP-led activity) has been concentrated in buyout deals, which account for just over 80% of the market. This dominance reflects investor preference for control positions in mature, cash-generating businesses. This said, venture capital, infrastructure, and private credit secondaries are steadily gaining traction, as investors seek new avenues for GP-led exposure.
In the past year, stabilizing valuation multiples in venture, stronger financials that balance growth and profitability, and optimism for improving IPO markets have drawn interest to late-stage venture companies. In 2024, Lightspeed raised a multi-asset continuation fund for ten assets from several aging funds to provide more time and capital for the companies. Insight Partners, RockPort Capital, and several other VC firms have also tapped continuation funds to extend the runway for select assets.
The rise of perpetual and evergreen fund structures is also reshaping where alpha can be found in the secondary market. Pressured to deploy capital swiftly and meet their own liquidity obligations, these vehicles have largely focused on the LP-led segment, where readiness to pay premium prices has compressed bid-ask spreads.
At a recent webinar we hosted, industry participants pointed to growing retail participation as a factor contributing to what some described as an “overheating” in the LP-led space. As a result, many secondary investors are shifting focus toward more concentrated bets, including single-asset continuation vehicles, where the potential for alpha remains more compelling. All is to say, continuation funds are rapidly emerging as a dynamic corner of the secondaries market, offering buy-side investors access to a growing opportunity set that increasingly reflects the broader private markets landscape.
However, continued growth will reshape supply and demand dynamics. In recent years, the space has largely favored buyers, with far more GPs looking to launch continuation vehicles than investors willing to commit capital. This imbalance has allowed buyers to be highly selective. As competition increases and more capital enters the market, investors will need to apply greater discipline and rigor to underwriting.
As continuation funds gain traction, they’re creating a growing opportunity set for a range of buy-side players — from existing and prospective LPs to secondaries investors and buyout firms — offering several strategic advantages. For one, unlike traditional LBOs, continuation vehicles allow GPs to leverage asymmetrical information to self-select high-performing assets, reducing blind pool risks. As a result, buy-side investors benefit from access to trophy holdings with proven management teams and growth plans over shorter duration hold periods.
While performance data is still emerging, given deal volume heavily accelerated post-2018, early findings point to compelling risk-adjusted returns. For example, a recent analysis by Morgan Stanley, covering continuation vehicle vintages from 2018 to 2023, found that they outperformed the MOICs of buyout funds across all quartiles, while also exhibiting lower loss ratios.
Additionally, like co-investments, single-asset continuation vehicles provide the ability to tailor exposure to specific assets or sectors aligned with an investment thesis, offering greater control over portfolio construction. That level of selectivity is increasingly valuable in today’s market. During the ZIRP era, secondary investors often benefited from buying broadly diversified portfolios. But in the current environment — marked by heightened volatility and dispersion across sectors, assets, funds, and managers — asset selection is becoming more critical.
Secondaries funds with a continuation fund focus allow investors to build concentrated portfolios of high-conviction assets with strong, durable fundamentals, while still maintaining fund-level diversification. In all, continuation funds offer the potential to access the benefits of secondaries — J-curve mitigation, accelerated vintage exposure, reduced blind pool risk, etc. — but in a more concentrated nature.
As market participants look to capitalize on continuation funds and incorporate them into broader private market strategies and portfolio construction, several important considerations emerge. For LPs, the rise of continuation vehicles introduces a fresh set of choices around liquidity and reinvestment.
To date, the muted distribution environment has led many allocators to take the cash. However, as mentioned, these funds offer attractive risk-adjusted returns that should not be ignored. Opting out could mean missing out on high-quality assets and opportunities. For example, research from Upwelling Capital Group shows that by systematically avoiding rolling over their exposure to CVs, LPs are incurring a tangible opportunity cost of around 8% per vintage year.
Separately, many secondaries investors are launching dedicated funds to capitalize on this growing opportunity set. However, GP-led deals demand a different approach from their LP-led counterparts, requiring investors to underwrite both the asset(s) and the sponsor. Valuation discipline is especially critical in these transactions, which often involve high-performing, sought-after assets priced at a premium.
More than 90% of buyers seek net returns above a 2x MOIC and 20% IRR when evaluating single-asset continuation vehicles. For multi-asset deals, the return thresholds are typically slightly lower — around 1.8x to 2x MOIC and 17.5% to 20% IRR. To ensure these return thresholds are met, these deals demand thorough asset-level due diligence, including a close examination of the company’s growth prospects, the strategic rationale behind the transaction, and whether the GP has a proven track record of value creation in similar situations.
Successful deals involve assets where there is a well-defined need for additional time and capital. For example, continuation funds are commonly used by GPs to support buy-and-build strategies when the capital needed to fuel acquisitions outstrips what the flagship fund can accommodate. In these scenarios, sponsors must clearly demonstrate the corresponding quantum and timing of follow-on investments and how they’ll support value.
Notably, while sponsor rationale has long been a key consideration in these transactions, the prolonged slowdown in traditional exit routes like M&A and IPOs in recent years has heightened scrutiny from secondary investors and LPs. There is increased emphasis on ensuring that a continuation vehicle represents the most appropriate path forward for the underlying assets.
During ZIRP, sponsors pursuing continuation vehicles could have easily sold their assets in a favorable liquidity climate, creating more inherent trust in the underlying rationale. With greater pressure to generate distributions, buyers need to dig deep into the motivations underlying the transaction, contextualizing them within the broader fund. If sponsors haven’t exited any fund assets for an extended period, for example, it’s crucial to ensure the transaction isn’t aimed at generating DPI to secure a fundraise.
Further, given their concentrated structure, continuation vehicles often demand more active oversight, including asset-level monitoring and, in some cases, independently conducted valuations. Like co-investments, these deals can also involve buy-side participants taking board seats, necessitating deeper access to company-level data and greater ongoing engagement.
Additionally, much has been made of the perceived ‘blurred’ distinction between co-investments and continuation funds. On paper, the difference is straightforward. Co-invests offer LPs access to new deals where GPs have high conviction but a limited track record with the asset, while continuation funds involve companies the GP already knows well — having spent years building and executing on the growth strategy. However, from a portfolio construction, skill set, and strategy viewpoint, there are overlaps. In many ways, the expertise for these transactions mirrors that of co-investments.
While these deals may carry less adverse selection risk — given that the assets are already well known to GPs and management teams — they nonetheless demand a high level of speed, execution, conviction, concentration tolerance, and asset class acumen. Ultimately, for LPs evaluating GP-led secondaries in their portfolio alongside a co-investment strategy, assessing returns on a net basis will play a salient role.
Continuation funds have also faced scrutiny for the inherent conflicts of interest embedded in these transactions around price and valuations, as sponsors straddle both the buy-side and sell-side. Almost all LPs and buyers agree that hiring a qualified advisor to conduct a competitive secondary auction is essential for cleansing this inherent conflict of interest.
Additionally, alignment among GPs, LPs, and buy-side constituents is increasingly critical to ensuring success in a CV transaction — LPs and secondary buyers want to see that GPs have skin in the game. Typically, this entails GPs becoming net buyers of the asset(s), rolling over 100% of crystallized carry and injecting a substantial amount of their own capital.
In today’s market, GPs are also expected to offer a “status quo” option, allowing existing LPs to retain their current economic terms, alongside the opportunity to reinvest proceeds under new terms aligned with incoming investors. Without these elements of alignment, deals risk falling apart in an environment where ample deal flow gives buyers the flexibility to be highly selective.
Ultimately, when executed properly, CVs can offer an unmatched level of alignment between GPs and investors, surpassing what’s seen in traditional buyouts. With typical transaction terms, GPs often end up maintaining ownership stakes in the continuation vehicle, ranging from 5% to 25% — a significant increase compared to the 2% to 5% commitment typically required in a traditional fund.
Read our Continuation Fund Report to discover how secondaries alpha is shifting toward concentrated vehicles, why CVs offer an all-weather portfolio management and liquidity tool, and how investors are leveraging technology to navigate these strategies.
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