Private Equity’s Bold New Move: Continuation Funds Explode, Reaching $87 Billion in Deal Volume
New York, NY – August 15, 2025 – A seismic shift is underway in the world of private equity. Continuation funds – a once-niche strategy allowing fund managers to retain ownership of successful portfolio companies beyond the typical fund lifecycle – have exploded in popularity, becoming a mainstream exit route and reshaping how deals get done. This isn’t just a blip; the market has seen a staggering ~33% compound annual growth rate since 2016, hitting approximately $87 billion in 2024, and is accelerating, with the first half of 2025 already reaching $47 billion – a 68% jump from the same period last year. This is breaking news for investors and anyone tracking the evolution of the PE industry.
What are Continuation Funds and Why the Sudden Surge?
Traditionally, private equity firms would exit investments after a set period, typically through a sale to another firm or an IPO. Continuation funds offer a different path. They allow the General Partner (GP) – the firm managing the fund – to raise new capital to purchase the portfolio company from the existing fund. Think of it as the PE firm essentially buying more time with a winner.
Several factors are driving this trend. Increased competition for assets means finding attractive deals is harder. Record levels of “dry powder” (uninvested capital) are pushing firms to be creative. Hold periods are getting longer, and the secondary market is hungry for yield and a degree of control. But perhaps the biggest driver is the opportunity to capture continued value from high-performing companies. It’s a way for GPs to double down on success.
Big Players Are Jumping In
This isn’t a strategy confined to smaller firms. Industry giants are embracing continuation funds. Just this month, TPG Twin Brook Capital Partners, backed by Coller Capital, closed a record $3 billion credit-focused continuation vehicle. Earlier in the year, Vista Equity Partners raised an impressive $5.6 billion to continue holding a stake in Cloud Software Group. These high-profile deals signal that continuation funds are no longer considered a risky or unconventional exit strategy, but a legitimate and increasingly preferred option.
A Boon for European Investors?
The appeal extends beyond U.S. shores. For Limited Partners (LPs) – the investors in private equity funds, particularly those in Europe – U.S.-based continuation funds offer a compelling proposition. They provide exposure to U.S. assets with reduced “blind-pool risk” – meaning the investment target is already known and vetted. Furthermore, these funds often offer co-investment opportunities and preferential terms to existing LPs, which is particularly attractive to European insurers navigating complex regulations like Solvency II. They can tailor the investment to better match their long-term liabilities.
Navigating the Regulatory Maze
However, it’s not all smooth sailing. European participation introduces a layer of complexity. Regulations like the Alternative Investment Fund Managers Directive (Aifmd), the Sustainable Finance Disclosure Regulation, and post-Brexit U.K. National Security and Investment Act filings add hurdles. Disclosure requirements, marketing restrictions, and potential tax implications can significantly lengthen the deal process. Conflicts of interest, inherent in the GP acting on both sides of the transaction, also draw increased scrutiny from European regulators. Expect more due diligence, independent fairness opinions, and stricter key-person covenants as European LPs seek greater protection.
The Future of PE Exits
The rise of continuation funds represents a fundamental shift in the private equity landscape. They offer a compelling alternative to traditional exit routes, providing benefits for both GPs and LPs. While regulatory challenges remain, the momentum is undeniable. As the secondary market continues to mature and GPs seek innovative ways to maximize returns, continuation funds are poised to become an even more integral part of the private equity toolkit. This trend isn’t just about extending investment timelines; it’s about a more nuanced and strategic approach to value creation. Stay tuned to Archyde for ongoing coverage of this evolving story and its impact on the global investment community.
