Continuation Fund

A continuation fund changes the owner vehicle without necessarily changing the sponsor

A traditional exit sells a portfolio company to a new owner or into the public market.

A continuation-fund transaction is different. One or more assets move from an older fund into a newly formed vehicle, typically managed by the same GP or sponsor.

Existing LPs are commonly given an election to:

• sell their economic interest and receive liquidity, or
• roll some or all of their exposure into the continuation vehicle

New investors can provide capital to finance the transaction.

Why continuation funds exist

A fund approaching the end of its term may still own an asset the GP believes has additional upside.

Selling immediately may not be viewed as the best commercial outcome, while simply extending the old fund can create governance and liquidity problems.

A continuation vehicle can create a new holding period and new capital structure around the asset.

ILPA describes continuation vehicles as an established private-market tool that can address differing liquidity needs among investors.^[1]

The transaction contains an inherent conflict

The GP commonly influences both sides:

• the selling fund is managed by the GP
• the buying continuation vehicle is also managed by the GP

That creates obvious questions about price, process, fees, carried interest and allocation of expenses.

ILPA’s guidance emphasizes conflicts management, transparent process, fair and defensible pricing, adequate time for LP decisions and meaningful LP engagement.^[1][2]

The conflict does not make every continuation transaction improper. It makes process quality unusually important.

A simplified example

An older buyout fund owns a company with a reported value of $300 million.

The GP believes another four years of ownership could create additional value, but some LPs want liquidity now.

A continuation vehicle is formed to acquire the company.

Existing LPs may be offered:

• a cash-out option based on the transaction price
• a rollover option into the new vehicle

New secondary investors contribute capital to fund part of the purchase.

The same operating asset continues, but the fund structure, investor group, fee arrangement and holding period can change.

Price discovery is central

Because the GP remains involved after the transfer, LPs need confidence that the sale price was established through a credible process.

Relevant evidence can include:

• third-party bids
• competitive auction activity
• independent valuation work
• fairness opinions where applicable
• recent financing or operating results
• transaction terms beyond headline price

The last reported NAV is a reference point, not automatically the correct transaction price.

Sell versus roll is a real investment decision

An LP that rolls is not merely declining liquidity. It is choosing continued exposure under a new vehicle with potentially different:

• fees
• carried-interest terms
• fund duration
• governance rights
• concentration
• leverage
• liquidity profile

The decision should therefore be evaluated as a new or renewed investment exposure, not as an administrative checkbox.

Current guidance is still evolving

ILPA published continuation-fund guidance in 2023 and released updated draft continuation-vehicle materials in 2026. As of August 31, 2026, ILPA stated that the 2026 public-comment period had closed and that final updated guidance was expected later in the year.^[1][2]

That makes this glossary term less static than most accounting definitions and warrants periodic review.

Common mistakes

“A continuation fund is automatically an exit.”

For selling LPs it can create liquidity. For rolling LPs and the GP, exposure to the asset continues.

“The old fund’s NAV determines the transaction price.”

No. Pricing should be evaluated through the transaction process and supporting evidence.

“Rolling is economically neutral.”

No. New fund terms, fees, duration and risk can change the economics.

“Continuation vehicles remove conflicts.”

They can create significant conflicts because the sponsor often participates on both sides of the transfer.

Continuation-fund analysis should focus on commercial rationale, price discovery, conflicts, LP decision time, rollover economics, fee and carry resets, leverage, transaction expenses and alternatives that were considered. The quality of the process matters almost as much as the headline valuation.