Continuation Funds

What a Continuation Fund Is

A continuation fund — sometimes called a GP-led secondary or a single-asset secondary — is a new investment vehicle created by a general partner (the fund manager) to acquire one or more assets out of an existing, older fund. The older fund gets liquidated or partially wound down, its limited partners receive either cash or an interest in the new vehicle, and the general partner continues managing the same asset under a fresh set of fund terms.

The mechanism sits at the intersection of two well-established markets: traditional private equity fund management and the secondary market, where investors buy and sell existing fund interests. Continuation funds are sometimes described as a subset of GP-led secondaries, a category that also includes portfolio-wide restructurings and preferred equity deals.

Why They Exist — and Why They Grew

Private equity funds are typically structured with a fixed life — often ten years, sometimes extended a year or two. That clock can become a problem when a portfolio company is performing well but is not yet ready for the optimal exit. Selling into a weak market or before a business has fully matured can destroy value that more time would have created.

Continuation funds emerged as a solution to that mismatch. Rather than forcing a sale purely because a fund document says time is up, the GP can effectively restart the clock by transferring the asset into a new vehicle with fresh capital and a new term. The practice grew sharply following periods of market dislocation, when exit markets tightened and managers found themselves holding assets longer than originally planned.

For new investors — typically secondary-market specialists — continuation funds offer the chance to buy into an asset with several years of operating history already visible. That visibility can reduce some of the uncertainty that comes with investing at the beginning of a fund's life, though it does not eliminate risk.

The Built-In Conflict of Interest

The most important thing to understand about continuation funds is the conflict they create. In a normal asset sale, a seller and a buyer negotiate at arm's length. In a continuation fund, the GP acts as both: it is the fiduciary for the old-fund LPs (the sellers) and simultaneously the manager of the new vehicle (the buyer). It sets or heavily influences the price at which the asset transfers.

This is not a hidden or unusual conflict — it is structural and widely acknowledged in the industry. What matters is how it is managed. The governance checks described below exist precisely because regulators, institutional investors, and market participants recognize that the GP's incentive to pay a lower price (benefiting the new fund's incoming investors, and potentially the GP's own carried interest calculation) can work against the old-fund LPs who are cashing out.

For existing LPs considering whether to roll or sell, understanding this tension is essential. A qualified investment professional and, where applicable, legal counsel should be involved in evaluating the specific terms of any such transaction.

The Roll-or-Sell Decision for Existing LPs

When a GP launches a continuation fund, the existing limited partners face a binary choice: accept the offered price and exit, or roll their interest into the new vehicle and continue as investors. Neither option is inherently right or wrong — the answer depends on each investor's circumstances.

Factors that a family and its advisers might examine include:

• Liquidity needs. Cashing out provides certainty. Rolling forward means continued illiquidity for the new fund's term, which may run several more years.
• Conviction in the asset. If a family has followed the portfolio company closely and believes meaningful value remains, staying in may be compelling. If they have limited information or limited conviction, an exit at a known price removes uncertainty.
• Fee and carry reset. The new fund typically comes with a fresh management fee and a new preferred return hurdle. Investors should review the full fee and carry structure of the continuation vehicle carefully before committing. These terms may differ meaningfully from the original fund.
• Tax timing. Cashing out is a taxable event; rolling forward generally defers recognition. The tax consequences for a particular investor depend on their specific situation, and a CPA must be consulted.
• GP alignment. Understanding how much capital the GP itself is committing to the new vehicle — the GP commitment — can signal how strongly the manager believes in the asset's remaining upside.

Families evaluating this decision should also review the due diligence framework that applies to any new private fund commitment, because rolling into a continuation fund is, in economic terms, making a new investment decision.

Governance Checks: How the Conflict Is Addressed

Because the conflict is structural, the market and regulators have developed a set of safeguards that serious managers are expected to follow.

Fairness Opinions

A fairness opinion is a written assessment, prepared by an independent financial adviser, stating that the price at which the asset is transferring is fair from a financial point of view to the existing LPs. It does not guarantee that the price is the highest achievable, but it does provide an independent check against egregiously self-serving valuations. The quality and independence of the firm rendering that opinion matter — this is an area where LPs can and should ask direct questions.

LP Advisory Committee Approval

Most institutional-quality funds have an LP advisory committee (LPAC), a small group of limited partner representatives with the authority to review and — in many fund structures — approve transactions that involve conflicts of interest. A GP-led secondary like a continuation fund is precisely the kind of transaction the LPAC process was designed to oversee. LPs who are not LPAC members should understand who is on the committee and what scope of approval was granted.

Tender Process and Third-Party Pricing

Many continuation fund transactions involve running a process in which multiple secondary buyers bid on the asset. This competitive tension can help establish a market-clearing price and reduce the GP's ability to simply dictate terms. The presence — or absence — of a competitive bidding process is worth understanding when evaluating any specific deal.

Regulatory Oversight

In recent years, securities regulators have paid increasing attention to GP-led secondaries. Regulatory guidance has emphasized disclosure requirements and the importance of genuinely independent processes. Managers registered as investment advisers carry fiduciary duty obligations to fund investors, and regulators have made clear they view continuation fund conflicts through that lens. Qualified legal counsel familiar with investment adviser regulations should be involved in structuring and reviewing these transactions.

Questions Worth Asking

Families invested in a fund that announces a continuation fund transaction may find the following questions useful when speaking with their investment advisers and the GP:

• Who conducted the fairness opinion, and what was their process?
• Was there a competitive bidding process? How many parties were approached?
• What are the management fee and carry terms of the new vehicle, and how do they compare to the original fund?
• What is the GP's own capital commitment to the continuation fund?
• What is the new fund's expected term, and what exit strategy is contemplated?
• Which LPs sit on the advisory committee, and what did the approval process look like?
• What are the tax consequences of rolling vs. selling in our specific situation?

Investors who are considering committing fresh capital to a continuation fund as a new investor — rather than rolling from the original fund — face a somewhat different set of considerations, and the standard framework for evaluating any private fund applies in full.