Continuation Funds: Ethics in Private Markets

Continuation funds provide liquidity in sluggish private markets by moving assets from an older private fund into a new fund managed by the same general partner (GP), while creating conflicts that require a fair process and strong governance.

• Legacy limited partners (LPs) can cash out or roll their interests into the new fund, with an estimated 80%–90% choosing liquidity.
• Depressed merger and acquisition (M&A) and initial public offering (IPO) exits have helped continuation funds nearly triple in global value over five years, reaching an estimated USD63 billion in transaction volume in 2024.
• GP conflicts arise because the manager serves both buyer and seller while potentially extending fees, resetting economics, and increasing equity stakes.

Liquidity needs have been the most important driver of continuation funds, also called continuation vehicles (CVs). With a drought of traditional exits (mergers and acquisitions and initial public offerings), CVs have emerged as an important alternative source of liquidity. They grew to an estimated USD63 billion in transaction volume in 2024.

• CVs have accomplished a remarkable transformation in reputation, from an association with “zombie funds” to a perceived repository of trophy assets.
• A fair process in establishing the CV is critical for its legitimacy. The process involves competitive bidding to select a lead investor, followed by negotiations between the GP and the lead investor to set the price. LPs in the older fund can choose to cash out or roll their interests into the new fund. Rolling LPs should be, but often are not, given a status quo option to retain the same economic terms of their investment.
• Continuation funds raise heightened conflicts of interest for the GP. The GP serves as the fiduciary for both sides of the same transaction — the continuation fund (the buyer) and the legacy fund (the seller). In addition, the GP has strong financial incentives to launch a CV, including the opportunity to prolong management fees, reset economic terms, and raise its equity stakes in what it believes are high-performing assets. Conflicts of interest can also arise among different LPs, illustrating their differences in size, resources, negotiating clout, and investment objectives.
• Governance mechanisms exist to address the conflicts, including requirements for the GP to obtain a conflict-of-interest waiver from the limited partners’ advisory committee (LPAC) of the legacy fund. Nonetheless, some of the investment professionals interviewed for this report expressed skepticism about CVs, arguing that they serve the interests of the GP rather than those of the LPs. Other LPs, however, seem happy to take the liquidity that CVs offer.
• Continuation funds illustrate key forces shaping private markets and hold timely lessons for market participants and policymakers. The increasing importance of CVs comes as new evergreen funds become available for retail investors and as policymakers in multiple markets consider further expanding retail access to private markets.

A CV is a private fund that acquires one or more assets from a preexisting private fund. The manager of the older fund manages the new fund, gaining an expanded investment timeline and the opportunity to reset key economic terms. In addition, the transaction usually brings in fresh capital for the new fund. Investors in the older fund can either gain liquidity by selling their interests or rolling them into the new fund. An estimated 80%–90% of legacy investors choose to cash out and are replaced by a new investor base.

CVs have gained significance in private markets by meeting the increasingly pressing need for liquidity. Traditional sources of liquidity — M&A transactions and IPOs — have been depressed in recent years, and continuation funds have emerged as an important alternative. Over the past five years, global continuation funds have nearly tripled in value, rising to an estimated USD63 billion in transaction volume in 2024 (Jefferies 2025, p. 7). Growth is expected to continue, propelled by an exit overhang in private funds, with 29,000 unsold portfolio companies valued at USD3.6 trillion (Bain & Company 2025, pp. 17–18.)

The trajectory of continuation funds is a story of their remarkable turnaround, from a reputation associated with “zombie funds” to a repository of trophy assets. For all their benefits, however, continuation funds raise fundamental conflicts of interest. The manager sits on both sides of the continuation fund transaction and owes fiduciary duties to both buyers and sellers. Moreover, the manager has its own financial incentives that may become misaligned with the interests of the legacy fund, the continuation fund, and their respective investors. Some skeptical investors dismiss continuation funds as a “transfer of economics” (i.e., financial benefits) from investors to managers.

One key to addressing these conflicts of interest is for the manager to conduct a fair process in creating a continuation fund. This report recounts the competitive bidding process that the private fund manager and its agent set up to select a lead investor and negotiate with that investor to determine the price.

This report is based on insights from interviews with a diverse range of private market investors, managers, and other experts. It is written for an audience of investment professionals — investors and fund managers alike — as well as financial journalists, policymakers, and others interested in understanding how private markets work. The report comes at a particularly pertinent time, as policymakers focus intently on whether and how to expand retail access to private markets. An appendix describes the emergence of evergreen retail funds that invest in private markets and traces their impact on both CVs and other components of secondary private markets.

This report is the first installment of our series on ethics in private markets. Conflicts of Interest in Continuation Funds Part II in a Series on Ethics in Private Markets was published on 23 July 2026.

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As CVs continue to evolve, general partners organize these secondary market transactions into two primary operational structures:

• Single-Asset Continuation Vehicles (SACV): Designed to isolate and transfer a single, high-performing "trophy asset" or "crown jewel" from the legacy fund, giving the GP more time and capital to maximize its eventual valuation.
• Multi-Asset Continuation Vehicles (MACV): Used to transition a slice of multiple portfolio companies from an aging primary fund, liquidating a portion of the original footprint while retaining exposure to several high-conviction businesses.

The core conflict rests on the general partner (GP) operating on both sides of the transaction. The GP owes a dual fiduciary duty to both the legacy fund (the seller) and the new continuation vehicle (the buyer). Additionally, the GP faces financial incentives to execute the deal, such as resetting carried interest terms and extending management fee streams.

An estimated 80% to 90% of legacy limited partners (LPs) choose to liquidate their stakes because evaluating a new continuation vehicle requires intense, asset-level underwriting. Many institutional investors lack the time, staff, or resources to make decisions within the typical 20-business-day window, leaving cashing out as their most practical option.

A status quo option is an industry best practice championed by the Institutional Limited Partners Association (ILPA). It dictates that legacy investors who choose to roll their equity into the new continuation vehicle should be allowed to maintain the same economic terms (such as management fees and hurdle rates) that they held in the original legacy fund.

The exit overhang refers to the massive backlog of mature, unsold portfolio companies held by private equity funds that have passed their optimal holding period but cannot be liquidated due to sluggish M&A and IPO markets. According to data cited in the report, this overhang encompasses 29,000 unsold companies valued at an estimated USD3.6 trillion. Continuation funds act as an essential alternative liquidity channel, allowing GPs to handle this backlog by transferring these assets to a new vehicle with extended timelines rather than forcing a fire sale in a depressed market.