Continuation funds: Why GPs use continuation vehicles

What is a continuation fund?

A continuation fund is a new investment vehicle created by the general partner (GP) of a private equity (PE) or venture capital (VC) firm to acquire one or more assets from an existing fund. The primary purpose is to extend the holding period for an asset beyond the original fund lifecycle, which often lasts a decade or more. This strategy is a type of GP-led secondary transaction that has become a significant force in alternative investments, with firms achieving 89 exits totaling $47.3 billion via continuation funds in 2024 alone.

Managers increasingly treat the continuation fund as a fourth exit route, sitting alongside initial public offerings (IPO), strategic sales, and sponsor-to-sponsor deals. It also runs on a different clock. Where the original fund often spans a fund term of about 10 years, a continuation vehicle is typically designed to operate on much shorter timelines to return capital more quickly.

The structure is now a mainstream tool. Nearly 75% of the largest global private equity firms have executed at least one continuation transaction, and continuation-fund syndications represented the largest share of limited partner (LP) direct secondary investments in the first half of 2025, according to the CAIA Association.

Are GP-led secondaries the liquidity answer?

Learn about alternative paths to liquidity for private market investors.

Free download

Why GPs use continuation funds

For a GP, the decision to use a continuation fund is strategic. For the fund's chief financial officer (CFO), it opens a complex operational process: simultaneously winding down the legacy asset's position while standing up a new legal entity with its own banking, compliance, and reporting infrastructure. The GP's motivations are typically twofold:

• Providing liquidity: When traditional exits narrow, a continuation fund returns capital to investors. IPO proceeds collapsed from their 2021 highs—falling to a 32-year low in 2022—and while activity has partially recovered since, the exit environment for private companies remains constrained.

• Maximizing value: This strategy allows the asset manager to retain ownership of high-performing assets that they believe offer significant upside, rather than selling early to a competitor.

In most cases, these company-sponsored secondaries have become a core liquidity solution rather than a last resort. As Nick Bunick, partner at NewView Capital, notes in Carta's H1 2026 tender offer update:

“As companies stay private longer, it's often impractical to defer liquidity until an IPO. … The best programs treat [liquidity events] as a strategic tool, not a standing commitment, preserving flexibility around timing, size, and participation.”

- Nick Bunick, partner, NewView Capital

How a continuation fund transaction works

While the concept of a continuation fund is straightforward, its execution involves a multi-step process that the fund CFO must oversee from start to finish. The transaction moves underlying assets from an old fund to a new one, providing a liquidity option for some investors while allowing others to continue their investment.

Most continuation fund deals move through the same core stages:

1. The GP identifies a promising asset in a fund that is nearing the end of its investment period or fund term.

2. A new continuation vehicle is legally formed to act as the buyer.

3. A fair price for the asset is determined through an independent valuation conducted by a third-party firm to ensure objectivity and mitigate conflicts of interest. Because the transfer price often reflects a premium or discount to the fund's last reported net asset value (NAV), this independent check is essential.

4. Existing LPs in the original fund are given a choice in an election process: either cash out their stake or roll their interest into the new fund in a rollover equity transaction.

5. The GP handles fundraising for the continuation fund from new investors, including a lead secondaries investor who helps set the price and terms, to finance the purchase of the asset and provide additional follow-on capital for its growth.

6. The transaction closes, the asset is transferred to the new fund, and cash proceeds are distributed to the selling LPs, which improves the fund's distributions to paid-in (DPI) metric.

Single-asset vs. multi-asset vehicles

Continuation funds can hold one asset or several, and that choice shapes both strategy and operational complexity.

Single-asset continuation vehicles

A single-asset continuation vehicle (SACV) is a fund focused on one prized portfolio company (commonly called a "crown jewel"), often structured as a special purpose vehicle (SPV). These vehicles are designed to invest in a single asset, unlike traditional funds with large portfolios.

While most SPVs are small, the largest deals command a significant portion of the market; though just 2.6% of SPVs manage $50 million or more, these supersized vehicles account for over 30% of all capital raised in such structures between 2016 and 2023.

These SACVs now anchor some of the market's biggest transactions: Grant Thornton cites the roughly $3 billion Alterra Mountain Company continuation fund in 2024 as one of the largest single-asset continuation vehicles to date.

Multi-asset continuation vehicles

A multi-asset continuation vehicle bundles several portfolio companies, a structure that has seen significant growth, rising to nearly 59% of overall continuation fund transaction volume in 2023. From the CFO's perspective, this multi-asset structure multiplies the operational complexity of fund management, including valuation, accounting, and reporting across several companies at once.

An emerging manager’s guide to SPVs

Our comprehensive guide covers everything from entity formation, banking, and investor onboarding to closing the deal.

Get the free guide

Continuation funds vs. secondary funds

Because both operate in the secondary market, continuation funds and secondary funds are easy to confuse. They solve different problems.

A secondary fund is a pooled vehicle that buys existing LP interests or portfolios from many different managers across the market. Its exposure is diversified across dozens of underlying funds, and the sponsor usually has no prior relationship with the assets it acquires. On the buy side, these vehicles attract institutional investors seeking diversification across private markets without concentrating on a single manager.

A continuation fund is narrower. A single fund sponsor raises it to buy one or more assets out of that same GP's aging fund, which makes it a GP-led secondary transaction rather than a broad market play. The manager already owns and operates the assets, so the deal concentrates exposure instead of spreading it.

For a fund CFO, that distinction drives the operational load. A secondary fund's finance team underwrites and tracks many positions it did not originate. A continuation fund's team, by contrast, runs a conflict-of-interest process, an LP election, and dual accounting for assets the firm already holds.

The continuation fund playbook: A step-by-step guide

For a fund's finance team, executing a continuation fund transaction is a significant undertaking that requires careful planning and precise execution. Here is what the CFO must manage at each stage to ensure a smooth and successful deal.

Step 1: Establishing a fair valuation

Establishing a clear fund valuation policy is the foundation for managing the conflicts of interest inherent in these deals. The conflict arises because the GP is effectively on both sides of the transaction. The GP sets the price for an asset they are selling from one fund while simultaneously buying it for another, which creates an incentive to favor one group of investors over the other. A common practice is to obtain a fairness opinion from a third-party firm, which is a formal report that assesses the financial fairness of the transaction price and terms. This independent valuation helps build trust with all stakeholders.

For firms that specialize in secondary transactions, a reliable valuation partner is essential. David Tom, co-president at VCFA Group, explains, "We recently had two companies sold. The valuations the Carta team provided were surprisingly close to the sale price.” A portfolio valuations provider with deep expertise in private market data and audit-defensible methodologies helps set a price that can withstand scrutiny from LPs, auditors, and regulators like the Securities and Exchange Commission (SEC).

How a single source of truth strengthens portfolio valuation

Discover how Carta’s platform automates data collection, streamlines reporting, and provides audit-ready documentation, all in one place.

Request a demo to see how.

Step 2: Managing the LP election and closing

The LP election process is administratively demanding. LPs must make a complex decision, often within tight timelines and without full familiarity with the transaction mechanics. The CFO's team must distribute detailed election packages, track responses from every LP, and field numerous questions about the transaction. For new investors and rollover LPs, this process is equivalent to a new fund closing, requiring the execution of subscription documents and completion of anti-money laundering (AML) and know your customer (KYC) checks for the new continuation vehicle.

A modern fund administration software can streamline this process. A secure, centralized LP portal gives LPs a single place to access documents, review terms, and make their elections. For Kapor Capital, Carta's "easy-to-use layout" was a key factor in improving the LP experience. Automating the subscription workflow with a closings management tool reduces the administrative burden on the CFO's team, freeing them to focus on strategic priorities instead of manual paperwork.

Step 3: Administering the new continuation vehicle and legacy fund

Executing a continuation fund creates a dual accounting challenge: the CFO's team must manage two separate general ledgers (GL). One is for the legacy fund to record the asset sale and distribute proceeds, and a new one is for the continuation fund to record the asset purchase and manage its ongoing operations. This also involves the fund formation process of setting up the new legal entity and its banking and administrative infrastructure.

For emerging managers, a clear operational model matters from the start. As Eduardo Zaldivar of Mosaic ETA explains, having a streamlined fund formation process is essential for scaling. "Carta has done a great job of helping us rinse and repeat without taking a bunch of time," he says. "We're really excited about subsequent funds." An integrated fund administration platform provides a single source of truth for both entities, eliminating the risks of manual, spreadsheet-based accounting.

Step 4: Navigating reporting and compliance

The transaction also creates dual reporting requirements. The CFO must deliver final reports and Schedule K-1s to the selling LPs of the old fund, while also establishing new, ongoing quarterly reporting for all investors in the new continuation fund. Throughout this process, it is essential to maintain a clear, comprehensive audit trail for the entire transaction to prepare for the annual fund audit, from the initial valuation to the final cash distributions.

Giving auditors direct, permissioned access to a single source of truth for all transaction documents and ledger entries in one system makes the annual audit faster and less painful. As Brian Montgomery of Legalist points out, consistency is key. "With Carta, if your inputs are correct, your outcomes are consistent. If we catch something in Carta, it's extremely quick to fix. We can see a new cut in hours. In a manual system, it can take days."

KYC as a competitive edge

Drive defensible decisions with attorney-led AI for transaction KYC, inbound requests, investor AML, and screening.

Get started

How to manage conflicts of interest

The core conflict in a continuation fund transaction is that the GP is on both sides of the deal, acting as both the seller (on behalf of the old fund) and the buyer (on behalf of the new fund). The fund CFO plays is responsible for implementing the risk-mitigation strategies outlined in the best practices below.

Ensuring a fair and transparent process

Navigating the conflicts in a GP-led deal starts with process integrity. Here are the practices that protect all investors:

Best practices include:

• Running a competitive bidding process to select the lead investor who will anchor the deal

• Providing all LPs in the legacy fund with the same level of information given to new investors

• Giving LPs adequate time to make their election decision, as recommended by industry bodies like the Institutional Limited Partners Association (ILPA)

• Seeking approval from the fund's Limited Partner Advisory Committee (LPAC)—and potentially obtaining a waiver if required—as outlined in the limited partnership agreement (LPA)

Achieving sponsor and investor alignment

New investors in a continuation fund need to see that the GP's financial interests are aligned with theirs. The most common approach for achieving this alignment of interests is a carry rollover, and industry best practices recommend that the GP roll 100% of the carried interest accrued into the new vehicle. The CFO's role is to accurately calculate this crystallized carry and ensure the mechanics of the rollover are correctly documented and reflected in the new fund's distribution waterfalls.

As Anubhav Srivastava explains during Carta’s VC Masterclass: Setting a Target Fund Size webinar, LPs are accustomed to standard fund structures. "It's great to be innovative, but be innovative in your investment selection process... Try not to innovate in portfolio construction and waterfall strategies." Structuring the carry rollover in a clear and standard way is essential to gaining LP confidence.

Risks CFOs should manage

A continuation fund concentrates several risks that land directly on the finance team.

• Valuation defensibility: The price sits at the center of every dispute. Because the GP sets it while sitting on both sides, you need an independent fairness opinion and audit-defensible methodology that can withstand LP, auditor, and SEC review.

• Multiple investor classes: Selling LPs, rollover LPs, and new investors each carry different economics and reporting needs. Tracking three sets of terms inside one vehicle is where manual, spreadsheet-based accounting tends to break.

• LP cash-out reality: Rolling over is not the default. In many deals, a large share of existing LPs choose to cash out rather than roll into the new continuation vehicle, so your election and distribution planning should assume meaningful redemptions.

• Regulatory and litigation scrutiny: The GP-on-both-sides conflict draws attention from regulators and plaintiffs, at least in the U.S. A clear, documented process and a complete audit trail are your best defense.

These risks are manageable, but they require attention from first valuation through final reporting.

Download the VC regulatory playbook

Our handbook is designed to keep funds up to speed with the current U.S. regulatory framework and upcoming developments.

Free download

Economic considerations for the fund

Continuation funds come with economic terms that differ from a standard private equity fund and add real complexity to fund administration.

Structuring fees and carried interest

The economic terms for a continuation fund are a key point of negotiation. These structures typically include management fees based on invested capital—a practice used by nearly 90% of all SPVs when calculating management fees—and a new carried interest waterfall. For larger SPVs, these fees are often standardized; among PE SPVs formed in 2023 with over $10 million in assets, half charged a management fee between 1.4% and 2%.

Some deals offer a status quo option to rollover LPs. This election allows them to maintain the economic terms of the original fund, which requires the CFO's team to track multiple sets of economic terms to accurately calculate fund performance metrics within a single vehicle. As Evan Epstein of Pacifica Global explains during Carta's Building Lasting LP Relationships webinar, non-standard terms raise the bar for LPs: "Lately, I've seen numerous seed funds with 30% carry out a 3X with full catchup. I just can't do it."

Allocating transaction expenses

The allocation of deal expenses—such as legal fees, valuation costs, and insurance premiums—is another heavily negotiated point in the deal flow process between the GP, the selling fund, and the lead investor. The fund's accounting system must handle these complex, non-pro rata allocations and provide a clear audit trail to justify them to LPs and auditors.

Partnering with Carta for continuation funds

Executing a PE continuation fund transaction using disconnected spreadsheets, emails, and multiple legacy service providers creates significant operational risk and inefficiency. The complexity of managing valuations, LP elections, dual accounting, and compliance demands a modern, integrated solution.

Running a continuation fund out of disconnected spreadsheets, emails, and legacy providers creates real operational risk. Managing valuations, LP elections, dual accounting, and compliance requires a system built for it.

A unified platform that combines expert services with purpose-built fund administration software allows a CFO to manage the entire transaction lifecycle in a single, auditable system. Carta supports more than 10,000 funds and SPVs, representing over $250 billion in assets under management.

This partnership model allows the fund's managers to focus on their core competency: investing. As David Tom explains, "We view our fund administration team as an extension of our firm because they intimately understand the needs and complexities of our funds' structures and investment strategies."

Request a demo to see how Carta can help you form, close, and administer your next continuation fund.

Manage your entire fund, in one platform

Experience fund admin at the intersection of world-class service and cutting-edge software.

Get started

Frequently asked questions about continuation funds

How does a continuation fund provide liquidity?

The new fund raises capital from new investors, often via a capital call, to buy an asset from the old fund, which generates cash proceeds that are then distributed to the old fund's limited partners who choose to sell their stake.

Who invests in continuation funds?

Secondary buyers are typically led by a lead secondaries investor that anchors the price and terms, joined by other new institutional investors and any existing LPs who elect to roll their interest forward. Selling LPs, meanwhile, exit for cash rather than participate in the new vehicle.

What is a status quo election for a rolling LP?

This is an option for an existing investor to roll their interest into the new fund while keeping the original fee and carried interest terms from the legacy fund, instead of adopting the new terms of the continuation fund.

How long do continuation funds typically last?

Continuation funds have a shorter lifespan than traditional funds, which typically operate on a fund term of about 10 years. Because continuation funds are often structured as special purpose vehicles, they are designed to operate on much shorter timelines to generate quicker returns for investors.