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It's the End of 2025 and Continuation Vehicles Still Divide Investors

As private equity firms continue to turn to continuation vehicles to hold onto their most successful investments, the industry remains split on whether this trend is a positive development.

According to data from Private Equity International, continuation fund deals are on track to reach a record high in 2025, surpassing the $100 billion mark for the first time. This explosive growth underscores the appeal of these structures, which allow firms to extend the hold period on their top-performing portfolio companies.

Yet some limited partners (LPs) are growing wary, concerned that the increased use of continuations could reduce transparency and lock up their capital for longer than expected. "There's definitely a divergence of views on continuation funds," said one industry source familiar with the matter. "Investors are split on whether this is a good thing for the asset class."

On one side, general partners (GPs) argue that continuation vehicles enable them to maximize value for their LPs by holding onto winning investments for longer. "If you've got a company that's really hitting its stride, it makes sense to keep it in the portfolio and give it more time to grow," said the head of private equity at a major asset manager.

However, critics counter that the proliferation of continuations could reduce the discipline in the industry, allowing GPs to avoid returning capital to investors in a timely manner. "There's a risk that this becomes a way for firms to keep assets indefinitely, rather than returning capital when the fund's life is up," cautioned the chief investment officer of a large public pension fund.

Regulators have also taken note, with the SEC increasingly scrutinizing the use of continuation vehicles to ensure LPs are being treated fairly. "It's an area that's getting a lot of attention from the authorities," noted a lawyer specializing in private funds. "Firms have to be very careful about how they structure and market these deals."

Despite the ongoing debate, the data suggests continuation funds are here to stay. With dry powder at record highs and fierce competition for assets, GPs are likely to continue leveraging these structures to hold onto their most prized investments. The question remains whether LPs will embrace this trend or push back against what some see as an erosion of the traditional private equity model.