Private Equity’s Continuation Funds Surge Amid Exit Market Collapse: Valuation & Risk Wake-up Call

The private equity sector is undergoing a structural shift. With traditional exit routes—IPOs, strategic M&A—stagnating under elevated interest rates and weak buyer demand, firms are turning to continuity strategies to unlock liquidity without external exits. Continuation vehicles (CVs) have evolved from a specialized option into a central mechanism in exit playbooks. [2][3]

From a financial engineering standpoint, CVs allow general partners to “sell” assets they own to a new fund under the same control, often at internally set valuations. This enables GPs to recognize paper gains, retain marquee assets, and generate fees from both fund vintages. However, this circularity raises the risk of inflated valuations, conflicts of interest, and misaligned incentives—particularly when assets later fail under market pressures. The collapse of Wheel Pros after being loaded with debt in its continuation fund is emblematic. [1]

Statistically, the trend is accelerating. In the first half of 2025, $41 billion in PE exits were executed via continuation vehicles, making up ~19% of all exits globally. This compares to about 13% in 2024 and only 5% in 2021. Projected full-year figures for 2025 are expected to exceed $100 billion. [2][4] LPs are cashing out far more frequently than rolling over stakes, signaling caution. [3]

Strategically, this means several things for different stakeholders: LPs must revisit diligence practices, asset valuation methods, and enforce governance rights. GPs may face pressure to justify continuation fund valuations to newer and older LPs alike. Regulators may begin to scrutinize whether CVs simply postpone losses rather than distribute economic value. For public pensions and systems under fiscal constraints, misperformance in CVs could exacerbate funding shortfalls. Moreover, the maturity wall—funds aging without exits—is causing a backlog that threatens capital inefficiency. [3]

Yet this shift also reflects opportunity: strong assets may benefit from longer hold times and more sustainable operational improvements rather than forced exit timing. Continuation funds align with LPs seeking lower-risk exposure to proven businesses. The key for GPs is maintaining credibility, rigorous valuation, transparency, and alignment of fees and returns. The balance between extending value versus merely delaying reckoning will be central to whether the trend produces lasting value or entrenches “rot.”

Open questions include: how independent are valuation and vote processes in CVs; how do returns on CV-held assets compare over 5-10 year spans; whether capital is being trapped; and what regulatory reforms are coming in response.