Understanding Continuation Vehicles in Private Equity Investments
Private equity can seem like a complex area of investment, but understanding specific tools - like continuation vehicles - can help clarify how investors and fund managers extend the life cycle of valuable assets.
This guide provides a comprehensive breakdown of continuation vehicles, how they work, and their potential benefits and risks.
What is a continuation vehicle?
In private equity, a continuation vehicle (also known as a continuation fund) is a structure created to hold one or more assets from an existing private equity fund. It provides a way for the general partners (GPs) to extend their involvement with investments that still have growth potential.
Typically, private equity funds operate with a fixed term - usually around 10 years. As the fund nears its end, the GPs may see opportunities to continue holding certain investments to maximise their value. Instead of selling the asset to another buyer, they transfer it into a new fund, known as a continuation vehicle, for an extended period.
What are General Partners (GPs)?
General Partners, often abbreviated as GPs, are the managers responsible for running private equity funds. They make investment decisions, manage assets, and aim to provide returns for the investors, known as Limited Partners (LPs). GPs are typically experienced professionals or firms with expertise in identifying, acquiring, and improving investments. They also have a fiduciary duty to act in the best interests of the LPs.
What are Limited Partners (LPs)?
Limited Partners (LPs) are the investors who provide capital to private equity funds but do not take part in the day-to-day management of the investments. They usually include institutional investors, pension funds, wealthy individuals, and endowments. LPs benefit from the expertise of the General Partners but their liability is limited to the amount of their investment. They generally expect returns over a long-term horizon and may have the option to exit or reinvest when continuation vehicles are introduced.
Why are continuation vehicles used?
1. Extended growth potential
Some investments require more time to fully realise their value. A continuation vehicle allows GPs to hold onto high-potential assets and execute a longer-term strategy without being forced to sell prematurely.
2. Liquidity for existing investors
Investors, also known as limited partners (LPs), in the original fund may have different priorities. A continuation vehicle allows LPs to choose between:
Exiting the investment by selling their stake and receiving liquidity.
Rolling over their investment into the continuation vehicle, staying involved for potential further growth.
How do continuation vehicles work?
The process explained:
GPs identify assets in the existing fund that they believe still have long-term growth potential.
A continuation vehicle is created to acquire the selected assets from the original fund.
Existing investors are given options: cash out (liquidity) or reinvest in the continuation vehicle.
New investors may also participate, providing additional capital for growth.
This structure ensures that investments with strong potential are not sold prematurely due to the fund’s expiration timeline.
What are the benefits?
For General Partners (GPs):
Retain control over promising investments and continue executing their strategy.
Extend investment horizons, maximising potential returns beyond the standard fund lifespan.
For Limited Partners (LPs):
Flexibility - Choose between exiting early or staying invested.
Optimised returns - Investors who roll over can benefit from extended growth potential.
For new investors:
Access established assets - Unlike early-stage investments, continuation vehicles focus on assets with a proven track record.
Lower risk profile - Since the assets have already demonstrated performance, new investors can make informed decisions.
What are the risks?
1. Valuation concerns
Determining a fair market value for assets transferred to a continuation vehicle can be challenging. Disagreements over valuation may arise between existing and new investors.
2. Conflicts of interest
GPs must balance the interests of:
Existing LPs looking for liquidity.
New investors expecting fair pricing and attractive returns.
Transparency in pricing and structuring is crucial to mitigate potential conflicts.
3. Liquidity uncertainty
While continuation vehicles offer liquidity options, there is no guarantee that investors will be able to sell their stakes at an expected price in secondary markets.
Key considerations before investing in a continuation vehicle
Before investing in a continuation vehicle, consider the following:
Investment goals - Does the extended time horizon align with your strategy?
Risk appetite - Are you comfortable with the illiquid nature of private equity investments?
Transparency - Does the GP provide clear valuation metrics and investment objectives?
Exit strategy - Understand the timeline for realising returns and potential liquidity constraints.
Final Thoughts
Continuation vehicles provide a structured solution for investments that need more time to mature. They offer flexibility for fund managers, liquidity for investors, and opportunities for new investors to access established assets. However, as with any private equity investment, it’s essential to carefully assess risks, fees, and investment alignment.
Understanding the role of continuation vehicles can help you make informed investment decisions that align with your financial goals and risk tolerance.
The value of units can fall as well as rise, and you may not get back all of your original investment.
Approved by In Partnership FRN: 192638 10/04/2025