What are continuation funds and how are private equity firms using them?

Continuation funds allow private equity firms to retain their sponsored companies instead of selling them, effectively rolling over their investments into a new fund.

Why are private equity firms struggling to exit their investments through M&A and IPOs?

The article suggests that some of the companies acquired by private equity firms during the pandemic may have been overvalued, making them difficult to sell now as the M&A and IPO markets have slowed.

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Private Equity Firms Rely on Continuation Funds to Manage Slow Exit Market

Q: How could the increased use of continuation funds impact private equity firms' ability to raise new funds?

Experts warn that once private equity firms cannot exit their existing positions, they will have a harder time generating the capital needed to make new investments, potentially leading to headwinds for the industry.

20 Aug

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Summary

Record use of continuation funds to retain private investments
Slower pace of deal exits through M&A and IPOs
Concerns about private equity firms' ability to raise new funds

Private Equity Firms Rely on Continuation Funds to Manage Slow Exit Market

In the summer of 2025, Wall Street's hottest trend is not about flashy IPOs, but rather the growing use of continuation funds by private equity firms. These funds allow firms to retain their private investments rather than selling them off through mergers and acquisitions (M&A) or initial public offerings (IPOs).

According to the article, the volume of continuation funds has reached record levels in the first half of 2025. This trend is driven by a slower pace of deal exits for private equity-backed companies. The M&A and IPO markets have improved this year, but many firms are still struggling to offload the companies they acquired during the pandemic. Some experts suggest these companies may have been overvalued when initially purchased, making them difficult to sell now.

The increased reliance on continuation funds raises concerns about private equity firms' ability to raise new money going forward. Once these firms cannot exit their existing positions, they will have a harder time generating the capital needed to make new investments and continue the cycle. This could lead to headwinds for the industry as a whole.

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