Continuation funds (or continuation vehicles) have moved from the margins to the mainstream. For general partners (GPs), they answer a familiar question: what do you do with a strong asset when its fund is running out of time?
The Institutional Limited Partners Association (ILPA) reports that continuation funds accounted for about 14% of sponsor-backed exits globally in 2025, up from 5% in 2021.
They are not – as is sometimes assumed – a dumping ground for underperforming assets. In Lazard’s 2025 sample, about 67% of single-asset deals priced above 95% of reference-date net asset value.
Their appeal is simple: they separate an investor’s preference for liquidity from the best ownership period for the asset. For GPs, that makes them an effective private markets solution – a way to return capital to limited partners (LPs), keep and continue to build a high-conviction asset, and crystallise value already created while earning new economics on the next phase. The catch is that the GP sits on both sides of the deal, so how it runs the process largely decides whether the transaction succeeds.
Why continue?
In our experience, the strongest continuation funds answer 3 questions: why this asset, why now and why a continuation fund rather than a sale? The asset should be worth buying again at today’s price, and the case is clearest where:
- the business is part way through a value creation plan that has outgrown the fund’s remaining life; and/or
- the plan needs capital (for capital expenditure or acquisitions) beyond the fund’s undrawn commitments.
Energy Exemplar is a good example. The Riverside Australian Fund II acquired it in 2017 and sold it to a continuation vehicle late in the fund’s life in 2021. After further strong performance, it was sold to Blackstone and Vista Equity in May 2024.
That answers the third question: existing LPs can take liquidity or roll over, while the GP, backed by new investors, keeps building the business. A continuation fund can also add competitive tension where credible bidders are scarce. Because the asset stays on the GP’s platform, it is a liquidity event for selling LPs rather than a third-party exit – and saying so clearly protects the GP’s track record when it next raises a fund.
The capital is there. On Lazard’s estimates, continuation funds made up about 86% of GP-led secondary volume in 2025 (53% single-asset), and around US$77 billion of dry powder was earmarked for GP-led deals in the second half of 2026. Even so, the largest and most complex deals still depend on a small group of lead investors able to underwrite the asset, negotiate governance and syndicate at scale.
The Australian angle
The regional runway is long. Evercore’s survey put only 2% of 2025 GP-led volume in the Asia-Pacific region. Yet Australia held A$4.77 trillion in superannuation assets at June 2026, about 16% of regulated super fund investments were in private markets at December 2025, and the Australian Investment Council calls exit pressure private equity’s most pressing challenge. That is a great deal of patient capital alongside a great many unsold assets – and a growing pool of potential partners for Australian sponsors.
The local market is small but scaling. Quadrant’s A$255 million MotorOne continuation fund and the A$143 million Armitage two-asset vehicle led by LGT show that deals under A$200 million can attract specialist international capital. Foresight’s A$660 million raise for its 30% interest in Kinetic, backed by institutions including super funds, extends the model to long-duration infrastructure. Pacific Equity Partners (PEP), through PEP Gateway, is lead investor in the continuation fund announced in June 2026 to acquire Mainland Poultry from Navis Asia Fund VII, with Mallesons advising PEP. The common thread is not simply ‘extend the fund’ but ‘re-underwrite and recapitalise a known asset’.
Both sides of the table: managing the conflict
The key issue is the GP’s conflict: it acts for the selling fund and manages the buying vehicle. In our experience, leading GPs manage it through price discovery and process – a competitive process to find a lead investor and set the price, a fairness opinion or independent valuation, and referral to the LP advisory committee (LPAC) for conflict consent. Handled well, that process is also what gets the deal done: it gives the LPAC comfort to consent and LPs confidence in the price.
It also helps to know where investors are pushing. ILPA’s final guidance of 20 October 2026 calls for early LPAC engagement, transaction-specific conflict review, a competitive process or other independent price validation, and a genuine sell or roll choice for existing LPs, with generally at least 20 clear business days to make it. The guidance is not binding and will not suit every deal, but it is a good guide to the questions lead investors and LPACs are likely to ask. Treated as a reference point rather than a rulebook, it lets sponsors anticipate those questions and answer them on their own terms.
Regulators and industry bodies are watching too. The Australian Securities and Investments Commission has not singled out continuation funds, but conflicts and valuation are central to its private markets review, and it has published an updated Regulatory Guide 181 on managing conflicts of interest. The Financial Services Council’s Standard No. 30 will also apply to its relevant full members from 1 July 2027.
Our take: a robust conflict process should form part of the pitch, rather than be treated as a compliance cost. It eases LPAC consent, supports the price and protects the GP’s standing with the LPs it will need for its next fund.
Alignment: skin in the game
Beyond the quality of the business, lead investors will focus on the GP’s alignment, in particular:
- how much crystallised carried interest is reinvested as part of the GP commitment; and
- any collateral benefits, such as a stapled commitment to the GP’s next fund, which can add value or certainty for the selling fund but should be disclosed.
Management: the other alignment question
Management incentives are a distinctive issue in buyout continuation funds. The deal is typically pitched as the existing strategy under the same senior team, so the lead investor will want management committed to the next phase.
The key here is alignment – given the GP will typically be rolling any realised carry as a GP commitment into the continuation fund, lead investors will generally expect a similar commitment from management so all interests are aligned to an ultimate exit. Alongside this is recalibrating the terms of the new incentive plan to reward management for value accretion from the new entry price.
Settling these points early, including the tax treatment of crystallised and rolled amounts, stops them becoming a late obstacle once price is agreed.
Getting the structure right
A continuation fund transaction combines fund formation and M&A. Beyond agreeing the scope of diligence and whether a new holding company is needed, we recommend settling these elements early:
- Debt refinancing: senior debt is commonly refinanced, including to fund the value creation plan. Financing can bridge funding but cannot substitute for price discovery (see our colleagues’ There’s a facility for that: fund finance as a liquidity toolkit elsewhere in this publication).
- Warranty and indemnity insurance: with little recourse available against the exiting fund, insurance gives incoming investors protection and the seller a clean exit.
- Key transaction documents: the continuation fund's governing documents and the sale and purchase agreement, negotiated by the lead investor and its lawyers for incoming investors. Most Australian funds are trusts, so this usually means a trust deed (rather than a limited partnership agreement), and the trustee's powers and duties will shape what the deal can do. Agreeing the lead investor's key terms early makes syndication easier.
- Regulatory approvals and tax: since 1 January 2026, qualifying acquisitions must be notified to the Australian Competition and Consumer Commission and cannot complete before approval, and a same-sponsor transfer is not automatically outside merger control. Offshore LPs can make a new continuation fund a foreign person for foreign investment purposes, even with an Australian manager. Income tax and state landholder duty also need early mapping, as leakage or approval timing can undo a successful auction.
A well-run process can take 20 to 28 weeks or more from readiness to closing.[1] The transactions that proceed most smoothly tend to share these features:
- Price: competitive bids plus an independent valuation or fairness opinion.
- LP election: a clear, well-supported sell or roll process, with the same information as new investors and enough time to decide, which supports roll take-up and LPAC consent (for super funds, a roll should be treated as a fresh investment decision).
- Alignment: meaningful GP reinvestment and a transparent fee and carry reset.
- Funding: committed equity for the full price with prudent debt.
To be continued…
We expect continuation funds to remain a core part of the private capital toolkit, and the next instalment is already taking shape. In Australia, we expect more mid-market single-asset deals, a distinct infrastructure and real assets segment, and more multi-asset vehicles on the Armitage template, with private credit continuation funds following more slowly. We also expect super funds to participate on both sides, and fund documents to deal in advance with notice, conflict votes, elections and costs.
For sponsors, the message is clear: with a credible conflict process, genuine alignment and careful structuring of the financing, incentive and shareholder arrangements, a continuation fund can work for LPs, the GP and management alike. Done well, the sequel can be better than the original.
Actual timing depends on price discovery, LPAC and LP election requirements, financing, regulatory approvals, tax and duty, and the size and complexity of the investor base.
