Continuation Funds: Ethics in Private Markets, Part I

To understand continuation funds is to appreciate key forces and issues shaping private markets. This report provides an unbiased understanding of what continuation funds are, what has driven their dramatic growth, and what they tell us about private markets. It also explains both the heightened conflicts of interest arising in continuation funds and mechanisms to address them.

A continuation fund 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 roll them into the new fund. An estimated 80%–90% of legacy investors choose to cash out and are replaced by a new investor base.

Continuation funds have gained significance in private markets by meeting the increasingly pressing need for liquidity. Traditional sources of liquidity — mergers and acquisitions (M&As) and initial public offerings (IPOs) — have been depressed in recent years, and continuation funds have emerged as an important alternative. During 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 of 29,000 unsold portfolio companies with an estimated value of 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, which can potentially 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 continuation funds and other components of secondary private markets.

• This report, the first part of a series on ethics in private markets, presents an unbiased explanation of what continuation funds are and how they work, based on insights from interviews with senior market practitioners and other experts.
• The need for liquidity has 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), continuation funds 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 a competitive bidding process to determine a lead investor and negotiations between the general partner (GP) and the lead investor to determine the price. Limited partners (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 also can 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 voiced skepticism about CVs, maintaining that they serve the interests of the GP and not 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.