Key Points
- Continuation vehicles are reported to have tripled in deal volume since 2021, accounting for around 14% of all private equity exits in 2025.
- Market factors such as demand for longer-term exposure to “good assets,” high interest rates and valuation gaps have driven the surge in continuation vehicle use.
- These mechanisms provide benefits such as liquidity for exiting investors and reduced blind-pool risk for rolling investors, but they also present potential conflicts of interest, in particular with regard to valuation. This combination seems likely to lead to disputes and greater regulatory scrutiny.
- Looking to the future, protecting investor interests should be central to sustainable development of these structures, especially as the terms continue to develop. There are a number of mitigating factors, but provision of proper information should be paramount..
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Once referred to as “zombie funds,” continuation vehicles (CVs) have been firmly established as part of the toolkit for a private capital sponsor to achieve an “exit” for investors. As the market develops, sponsors are innovating and offering investors new options to participate in longer-term assets.
When considered in light of the growing “retailization” of private funds, it is no surprise that these options include “evergreen” funds that have no fixed term. Regardless of the structure, however, sponsors should continue to provide fulsome disclosure as early as possible in order to mitigate investor concerns and ensure CVs remain sustainable.
Market Illiquidity: The Impetus for New Fund Structures
CVs are an answer to challenges posed by the traditional private equity fund structure — generally a closed-ended vehicle with a restricted life of eight to 12 years. Investors commit to making contributions when called by the fund manager throughout the life of the fund, and they receive distributions of their capital and profits when the fund disposes of assets.
But a combination of factors has made it harder for funds to exit their investments, tying up investors’ capital for longer than expected. In response, fund managers have increasingly adopted the CV transaction structure — selling assets from one fund that they manage to another, instead of selling such assets to unaffiliated third parties.
These purchasing funds are often established specifically to buy one or more investments currently held within a fund manager’s portfolio.
CVs have become a common tool to return money to investors. The investment banking and capital markets firm Jefferies, in its 2025 Global Secondary Market Review, reported that CVs accounted for roughly 14% of sponsor-backed exit deal value globally in 2025, up from 5% in 2021.
Private equity groups are reported to have a record backlog of unsold investments. While this may partly be the result of managers offering strategies with longer hold periods, this is also likely a reflection of:
- Valuation gaps. A sharp increase in U.S. and European interest rates in 2022-23, which continue to remain at elevated levels for the post-2008 period, are causing unfavorable exit valuations for private equity investments made prior to the rate increases. Private equity managers may therefore seek to hold onto assets in the expectation that interest rates will fall and thereby improve exit valuations.
- Limited IPO opportunities. A lukewarm IPO market in recent years due to geopolitical risk and AI-driven technological uncertainty has made it harder to achieve exits in that more traditional way.
Yet the limited duration of most private equity funds means that private equity fund managers must find a way of selling assets that they manage. A failure to do so risks harming investor relations by forcing fund managers to request repeated extensions to the life of their funds, which would continue to lock up investor capital, or selling assets at unfavorable valuations that depress investor returns.
CVs can provide a solution, but they carry with them unique benefits and risks compared to selling an asset to a third party or taking it public.
Continuation Vehicle Benefits
For Managers
- Scaling up, or another shot at success. Fund managers gain more time and potentially more capital from new investors to execute (i) additional growth plans for their trophy assets or (ii) remediation efforts to turn around underperforming assets.
- Liquidity to investors. Fund managers address investors’ needs by providing liquidity for the aging, selling funds even where the IPO or trade sale market is depressed or closed.
- Ongoing fees. Because the sponsors continue to manage the assets rather than sell to a third party, they retain management and performance fee streams.
For Investors
- Optionality. Existing investors can choose to roll their investment into the new CV for potential future upside or cash out for immediate liquidity.
- Reduced blind-pool risk. New investors benefit from (i) knowing exactly which asset they are investing in, avoiding the uncertainty of a traditional blind-pool commingled fund, and (ii) in some cases, attaining additional rights regarding the investment into the underlying assets, or governance rights over the assets.
Continuation Vehicle Risks
CVs introduce inherent risks of self-dealing and valuation conflicts given that both the buying and selling funds are managed by the same fund manager. Such issues could result in:
- Investor disputes. In recent litigation, a fund manager was accused of incorrectly valuing an asset being sold to a CV, together with related breaches of fiduciary duty, as well as inadequate transparency regarding the sale process.
- Regulatory action. In 2016, American Infrastructure Funds LLC transferred a company asset between two funds it advised, without adequately disclosing certain conflicts of interest. This locked up investor capital for an additional 11 years without investors’ informed consent, leading to an SEC finding of misconduct in 2023.
Looking Ahead: ‘Evergreen’ Continuation Funds and Better Investor Protections
For the reasons set out above, CVs have quickly become an established tool for private capital sponsors as their portfolios mature. Nevertheless, terms continue to vary and evolve depending on the relevant asset and sponsor. With some assets, investor demand for even longer-term exposure to certain assets has meant that CV-to-CV transactions (where a CV transfers an asset into a new CV) are likely to become increasingly popular.
At the same time, the private capital market has continued to go through a process of “retailization,” with a number of sponsors launching open-ended vehicles with periodic liquidity to attract retail investors who are likely to have a different investment time horizon compared to institutional investors.
It is no surprise, therefore, to see these two concepts collide and for evergreen CVs to be promoted for certain assets. For both investors and sponsors, an evergreen vehicle can present an opportunity to ensure consistent long-term management of an asset. But the sponsor must also be able to provide liquidity and take on the inherent pressure that liquidity requirement can place on ownership of such assets.
Regardless of the changing terms and structures that may be used for CVs, their increased prevalence is likely to lead to standardized practices. To this end, the Institutional Limited Partners Association introduced the Continuation Fund Disclosure Template in January 2026. The template seeks to summarize and standardize the key information that should be provided to investors in the event of a CV process.
CVs are undoubtedly a useful tool for liquidity in times of market stress and provide managers and investors with a way of retaining exposure to “good” assets. Sustainable growth in the use of CVs will require sponsors to remain mindful of providing sufficient protection to investors — both when it comes to the terms and structure, but also in maintaining high standards for investor transparency and disclosure.
Associate William K. Hardaway and trainee solicitor Maximilian Willis contributed to this article.
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.