New research by private equity placement agent MCAM Group reveals that 42% of private equity firms now have continuation funds, a mark of a growing trend that reflects the industry’s shift away from the traditional 5-7 year buy-and-sell cycle.
Despite their increasing popularity, continuation funds currently represent just $60bn in total assets, a mere 1.5% of the $4.2tn in assets under management (AUM) held by these firms. However, 32% of continuation funds now contain multiple assets, suggesting they are becoming a more permanent fixture in private equity portfolios.
The rise of continuation funds comes at a time when private equity firms are struggling to exit assets at desired valuations. The IPO market downturn since 2021 has made traditional exits — via public listings or sales — less attractive, leading many PE firms to extend their holdings rather than sell at lower-than-expected prices.
Continuation funds allow firms to retain high-value assets for longer than the typical 10-year fund cycle, giving them more time to maximise returns. For limited partners (LPs) seeking liquidity, these funds offer the option to exit their investment, while others can roll over their capital into the continuation vehicle.
Historically, LPs have been hesitant about investing in continuation funds, but sentiment is shifting as firms demonstrate their ability to create additional value by holding onto certain assets for longer.
“LPs have historically been reluctant to invest in continuation funds — that has now changed,” said Lars Bjoergerd, Managing Director of MCAM Group. “Private equity firms have shown that extended hold periods can drive better returns, and this has increased LP investment in these vehicles.”
While market conditions have been the immediate catalyst for this trend, MCAM suggests that continuation funds are part of a broader industry evolution, allowing PE firms to adopt a longer-term investment approach.
Even if exit markets improve, continuation funds may remain a key tool for private equity firms aiming to optimise asset value over extended periods.
“Even in a stronger exit market, PE firms would have been adjusting for the fact that holding onto a more valuable asset for longer can provide better returns,” Bjoergerd added.
With continuation funds allowing firms to hold prime assets for longer, the traditional 10-year fund lifespan — with two 12-month extensions — may be evolving into a more flexible investment horizon. If executed effectively, this strategy could lead to higher long-term returns, albeit with later exits.
