Exit Drought: How Private Equity Is Rewriting Its Own Playbook
Private equity (PE) used to be simple. You buy a company, improve it, and exit—via IPO, acquisition, or recapitalization. That elegant playbook worked for decades.
But times have changed: The IPO window is mostly shut. Strategic buyers are cautious. Debt markets are volatile. And funds sitting on mature assets are facing an uncomfortable truth: the exits they counted on simply aren’t materializing.
So, what do you do when you can’t sell? You sell… to yourself.
Hello Continuation Funds—a workaround that’s increasingly becoming a core strategy for PE firms navigating a stalled exit environment.
What Are Continuation Funds?
A continuation fund is a new investment vehicle set up by a PE firm to buy one or more assets from its own older fund. The GP (general partner) keeps control. Original LPs (limited partners) can either cash out or roll their stake into the new fund. New LPs can enter with fresh capital, often on better terms, and with shorter holding periods.
Think of it as private equity hitting the pause button, moving prized assets to a new fund instead of selling them outright—essentially buying time while keeping control.
Growth has been Staggering
Continuation funds have exploded from a niche tactic into a cornerstone of strategy as PE firms scrambling for exits in a market that no longer offers them easily:
In 2015, GP-led secondaries (primarily continuation funds) totaled just $9 billion.
By 2023, that number ballooned to over $50 billion.
In just the first half of 2025, PE firms executed $41 billion in continuation fund transactions—accounting for nearly 1 in 5 private equity exits.
Continuation funds, once a niche solution, are now a $40–$50 billion annual mechanism. In a world where traditional exits are drying up, they’ve become the go-to alternative.
Why Now?
Several forces are converging:
Stuck Assets: Over $3 trillion in private equity assets are trapped in aging funds, unable to exit in today’s market.
Broken Timelines: The standard 10-year fund lifecycle no longer fits the reality of longer value creation cycles.
Investor Pressure: LPs need liquidity—even if the market doesn’t cooperate.
Strategic Flexibility: GPs want to double down on winners, not exit under pressure or suboptimal terms.
Continuation funds offer a way out. Or rather, a way through.
But It’s Not Risk-Free
While continuation funds provide breathing room, they come with baggage:
Governance complexity: The GP sits on both sides of the deal—seller and buyer—raising questions about fairness and conflicts of interest.
Concentration risk: These vehicles often hold just one or two assets, making them more vulnerable than diversified funds.
Regulatory scrutiny: The SEC is watching, and new rules around disclosure and valuation are coming.
Still, for many GPs, the benefits outweigh the risks.
What Founders Need to Know
Startup founders traditionally looked at PE as “the first of two bites out of the apple”, that is, the initial PE deal isn’t necessarily their final exit. Instead, it's the first major liquidity event—typically involving a partial cash-out or recapitalization—while retaining some ownership. The second “bite” comes later, often through a full sale or IPO is the major realization of the value of their venture. With continuation fund transaction there’s delayed gratification. In essence, it’s a staged exit strategy: take some chips off the table now, stay in the game, and cash in again when the value grows.
If you’re a founder in a PE-backed company, continuation funds can significantly impact your trajectory. These deals often delay traditional exits like IPOs or acquisitions, bringing in new investors with fresh expectations while keeping the same GP in control. You may face a valuation reset, increased scrutiny, and new performance pressures. While LPs and GPs might gain liquidity, founders often don’t—unless secondary or equity refresh terms are explicitly negotiated. In some cases being part of a continuation fund signals confidence, but it also means re-pitching your story and aligning with a longer, evolving horizon.
With VCs taking the first bites out of the apple, it’s clear that PE firms—and now continuation funds—are carving out additional bites, extending the time to realize enterprise value over multiple stages.
Conclusion
Continuation funds represent a strategic shift—not a temporary fix. What began as a workaround has become one of the main plays in the PE playbook. GPs are extending timelines, creating liquidity, and rewriting the rules of private equity. Even if IPOs and M&A return, continuation funds are here to stay. This isn’t just adaptation—it’s reinvention.
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