Continuation Funds: A Growing Trend in Private Equity Exits

The Rise of Continuation Funds

• 📈 Continuation funds are increasingly becoming a significant part of private equity exits, accounting for 19% in the first half of 2025, and on track for 20% by year-end.
• 💡 This trend represents a substantial jump from 7% in 2022 and 13% in 2024, indicating a growing reliance on this exit strategy.

Liquidity and Investor Dynamics

• ⚠️ The surge in continuation funds highlights liquidity pressures within the private equity market, particularly for assets acquired during the 2021 boom.
• 💰 Limited partners (LPs) are often choosing to cash out their stakes in existing funds, seeking immediate liquidity.
• 🔄 While the underlying manager typically remains the same, the investor base within these continuation funds is frequently being turned over.

Parallels and Concerns

• 🧐 While not identical to circular funding in the AI trade, continuation funds share similarities in how capital flows and investors are managed.
• 🚩 The emergence of continuation funds post-Great Financial Crisis, as a response to a lack of liquidity, raises potential red flags for some observers.

Challenges and Future Outlook

• 📉 The increasing use of continuation funds signals that private equity firms are struggling to take companies public or sell them at desired valuations.
• ⏳ Firms are hoping for a market turnaround in 2026 to offload assets bought at peak 2021 prices without incurring losses.
• 🧩 A key question is whether continuation funds can absorb not only the best assets but also B-grade assets, a challenge that will become clearer in the coming years.