Private equity's shift to continuation funds signals a new era in challenging exit markets

Continuation funds have moved from niche structuring to a central plank of private equity’s response to a difficult exit environment, allowing firms to keep prized assets in-house while offering investors the choice to roll over or cash out. According to Jefferies, private equity sponsors used continuation vehicles to exit $41bn of investments in the first half of 2025 , equal to a record 19% of all industry sales and 60% higher than the same period in 2024. The rise has been driven by a prolonged slump in IPOs and takeover activity, which has constrained distributions to limited partners and pushed managers to create alternative liquidity routes.

The mechanics are straightforward: a continuation fund buys assets from an older vehicle managed by the same sponsor, enabling the general partner to extend holding periods beyond the typical 10‑year fund life, crystallise performance fees and earn management fees on the new vehicle. Large sponsors such as Vista Equity Partners, New Mountain Capital and Inflexion have publicly embraced the structure. The company claims and industry participants argue these funds can fund further transformation without an ownership change, offering a potentially cost‑effective route to continued value creation while providing some investors with faster, more predictable liquidity than a conventional sale.

Not all investors welcome the shift. Bain & Co found that almost two‑thirds of limited partners would prefer traditional routes , trade sales or IPOs , over continuation structures, which were favoured by only about one‑sixth of respondents. Critics characterise some continuation transactions as a means of recycling capital or an opt‑out for managers unable to secure market exits. In response, some institutional investors have begun to opt out of continuation transactions or to demand greater governance protections and independent pricing mechanisms.

Several industry participants expect continued growth. Schroders Capital estimates the market for continuation investments could expand from roughly $70bn today to more than $300bn over the next decade, citing both long‑term evolution and near‑term dynamics. Schroders notes that continuity of ownership can accelerate strategic initiatives and de‑risk large transformations, while also offering sponsors a way to balance the competing demands of delivering liquidity to maturing funds and capturing upside through additional hold periods.

That structural shift sits alongside a wider, mixed signal in the exit market. After an extended drought, exits began to recover unevenly through 2025. S&P Global Market Intelligence reported a busy third quarter, registering 817 PE and VC exits , the second‑highest quarterly total since late 2021 , and 2,360 exits across the first three quarters of 2025, putting the industry on course to exceed the 2,991 exits recorded in 2024. Nonetheless, exit value remained depressed: S&P data showed aggregate exit proceeds of $286bn to the end of September 2025, well below the $473bn seen in 2024 and on pace for the lowest full‑year total in at least four years. Earlier in the year, S&P Global Market Intelligence recorded that Q1 2025 was the weakest two‑year period for exits, with 473 deals worth $80.81bn, reflecting tariff risks and valuation uncertainty.

The uneven recovery manifests in deal type as well as volume. Trade sales to corporate buyers have shouldered much of the exit burden: S&P Global Market Intelligence and other industry commentary noted trade buyers accounted for a large share of H1 2025 exits, with six of the ten largest exits in the period completed via corporate acquirers. Industry data for 2024 showed exit values hit a five‑year low of $392.48bn, underscoring the extended pressure on realisations that has helped fuel the rise of continuation strategies.

Macro and market dynamics explain much of the shift. Years of elevated interest rates, geopolitical strains and cautious strategic buyers compressed valuation expectations and slowed IPO activity, prompting general partners to bring fewer assets to market or to seek alternative monetisation routes. That said, pockets of strong activity remain: the United States saw a notable rebound in H1 2025, with $311bn of exits driven by blockbuster transactions such as the $54.6bn take‑private of Electronic Arts, which industry observers cited as emblematic of renewed sponsor and strategic appetite for large, complex deals.

Dealmaking itself has been resilient. KPMG reported $1.5tn of global PE deal volume in the first three quarters of 2025, putting the industry on track for a four‑year high if momentum persisted. Infrastructure has been a particular focus, with KPMG and other advisers highlighting substantial allocations to transport and energy assets. BCG and EY cite data centre investment as a standout growth area: BCG recorded a record $50bn invested in data centres in 2024, up from $11bn in 2020, and EY reported more than $100bn of PE investment in data centre projects from 2021–24. The expansion of AI and cloud computing is a core driver; data centres already account for more than 2% of global electricity use and are forecast to reach 3–4% by the end of the decade, which in turn increases demand for private capital. CBRE noted private infrastructure fundraising remained robust into 2025, with $48bn raised in Q1 2025, the third‑highest first‑quarter total in five years.

Sovereign wealth funds are reshaping the capital base of large transactions. Deloitte projects SWF assets could reach $18tn by 2030, and their PE deployments have accelerated: in 2024 SWFs invested nearly $30bn in US PE deals, pushing cumulative deployments since 2018 above $367bn. The combination of PE sponsors, SWFs and large strategic buyers can unlock transformative deals, as seen in recent mega‑transactions and consortium bids.

Looking ahead, continuation funds are likely to remain an important, if contested, tool. If exit markets normalise , with higher IPO volumes, more strategic trade activity and firmer valuation levels , the appeal of rolling assets into continuation vehicles may wane. Conversely, if market uncertainty persists, continuation structures will provide sponsors with optionality to steward long‑term value while satisfying some liquidity needs. The industry’s next phase will be shaped by the twin forces of technological integration and infrastructure demand: AI‑driven deal sourcing, diligence and portfolio operations will coexist with large capital needs for energy transition and digital connectivity. Firms that combine disciplined underwriting, transparent governance in continuation transactions and a capacity to deploy capital into strategic infrastructure are likely to fare best amid ongoing volatility and regulatory scrutiny.