Continuation Funds Redefine Private Equity Exit Strategies

Faced with rising interest rates and geopolitical uncertainty, private equity firms have grown reluctant to sell or take companies public until valuations stabilize. Continuation funds—a type of single-asset vehicle—offer a flexible alternative by enabling firms to hold onto strong performers while giving early investors an option to cash out at NAV-like valuations. A prime example occurred when New Mountain Capital arranged a $3 billion transaction for its portfolio company Real Chemistry, raising fresh capital to reward existing investors while securing growth funding.

The rise of continuation funds is not limited to one-off deals. In 2024, these vehicles represented a record 13 percent of global private equity exits compared to just 5 percent in 2021. By rolling over or selling stakes at current valuations, original investors receive liquidity, while sponsors remain vested in future growth. Median returns on continuation vehicles run around 1.4x net of fees—slightly higher than conventional buyout funds—offering lower downside exposure and an extended path to value enhancement.

Despite their popularity, continuation funds bring potential conflicts of interest. Firms selling assets to themselves face scrutiny over valuation fairness and fiduciary duty. In response, industry groups issued guidelines in 2023 urging full transparency, rationale disclosure, informed consent windows for LPs, and fair rollover terms . Adoption is widespread—70 to 80 percent of top private equity firms have used continuation strategies—but demand may soon exceed supply, prompting smaller sponsors to create dedicated continuation-drivers.

The ascent of continuation funds reflects a shift in private equity strategy. In a world where traditional exit routes are clogged by market uncertainty, firms are building bespoke liquidity mechanisms to preserve control of premium assets. Investors benefit from optionality without forced sales, while sponsors gain runway to enhance value. As capital markets continue evolving, continuation vehicles will likely become a standard strategic toolkit, not a niche workaround.