A continuation fund is a new investment vehicle that a fund sponsor forms to acquire one or more assets from a fund it already manages, allowing the sponsor to continue holding those assets beyond the original fund’s term. It is a type of general partner-led secondary transaction. When a fund is approaching the end of its life but still holds assets which the sponsor believes have further growth potential, the sponsor can move those assets into a continuation fund.
Existing limited partners are typically given a choice: take liquidity by cashing out their interest or roll their interest into the new vehicle and remain invested. Continuation funds have become an established tool for managing high-conviction assets and providing optional liquidity, and they raise specific conflict-of-interest, valuation and disclosure considerations that should be addressed carefully.
Related questions
What is a GP-led continuation fund? It is a continuation fund initiated by the general partner, as opposed to a sale driven by a limited partner. The sponsor leads the process of moving assets into the new vehicle and setting the terms offered to existing investors.
What is the difference between a GP-led secondary and a continuation fund? A continuation fund is one common form of GP-led secondary. The broader category of GP-led secondaries includes other sponsor-initiated transactions, but continuation funds specifically involve transferring assets into a new vehicle managed by the same sponsor.
Why do sponsors use continuation funds? Sponsors use them to keep managing assets they expect to appreciate further, to give existing investors a liquidity option at the end of a fund’s term, and to bring in new capital to support the assets’ next phase of growth.
How do continuation funds affect existing investors? Existing limited partners generally choose between selling their interest for liquidity or rolling into the new fund. Because the sponsor sits on both sides of the transaction, the process requires careful attention to valuation, conflicts and investor disclosure.
