Everything You Need To Know About Continuation Fund!

A private equity fund's 10-year life is ending, but an asset or assets aren’t ready to sell (or can’t be sold). What's the solution?

Enter the continuation fund.

In today's tough exit market, GPs use these vehicles to sell a company from an old fund... to a new fund they also manage. Existing investors (LPs) can cash out or roll their stake, while new investors provide the capital.

But are they a good deal for investors? Let's look at the pros and cons:

 The Pros: Clarity & Speed

• No Blind Pool Risk: You invest in a known company, not a blind strategy. This allows for deep due diligence on a specific asset(s) before committing.
• Shorter Duration: The fund has one goal: maximize the asset's value and exit. This means a much shorter holding period than a typical 10-year fund.

The Cons: Conflicts & Quality Concerns

• The Pricing Conflict: The GP is both buyer and seller. This creates an incentive to manipulate the price, based on the situation.
• The "Lemon" Problem: Are you being offered a crown jewel, or an asset(s) no one else would buy? The risk of adverse selection is real—cautionary tales like Wheel Pros and Enviva prove it.

The Bottom Line: Continuation funds are a double-edged sword. They offer focused access to certain assets, but the inherent conflicts demand rigorous, independent due diligence from investors.