Continuation funds, once a post-crisis workaround for expiring vehicles in weak exit markets, are booming and find themselves at the centre of growing criticism. Critics warn they distort valuations, mask losses, and edge dangerously close to Ponzi-like dynamics.
Continuation vehicles first gained traction in the aftermath of the global financial crisis, offering private equity firms a way to extend holding periods when exits were scarce. General partners (GPs) can retain control of “trophy” assets a little longer; limited partners (LPs) may either roll over or exit; new investors enter at a negotiated price. In theory, everyone wins.
But critics, such as Rachel Wasserman, a Canadian corporate lawyer at Wasserman Business Law, warn that continuation vehicles are “getting uncomfortably close” to Ponzi territory. “The returns are built on recycled capital, not real performance,” she told Investment Officer.
“LPs who don’t roll over their interest are not being paid out by business growth,” she said. “They are being paid out by the dry powder cash of the GP to replace them.” In her view, this mimics a return profile based not on realised gains, but on recycled capital.
Despite the concerns, continuation funds are moving into the mainstream, particularly in Europe. According to Investec’s PE Trends 2025 survey, nearly half of private equity managers in the UK and Europe expect to use continuation funds as an exit route over the next 24 months. That compares with 54 percent who still see trade sales as the most likely channel.
Tool for deferring losses
Wasserman, who previously worked at a top ranked investment bank in Canada, has become one of the most vocal critics. Continuation funds, she argues, have quietly become a tool for deferring losses and protecting fee income.
From less than a billion dollars in deal volume a decade ago, continuation vehicles have grown significantly. Last year 38 billion dollars in aggregate capital was raised, and the number of continuation vehicles climbed to a record 70 in 2024, up from 57 a year earlier, according to Preqin, which describes them as a “creative liquidity solution” for managers facing constrained exit markets.
Record number of continuation funds closed in 2024
Source: Preqin Pro
In the EMEA-region too, continuation fund activity has accelerated sharply. According to Mergermarket, a financial data provider focused on M&A and private capital markets, 27 such deals were recorded in 2024, nearly twice the number seen the year before. Both 2021 and 2022 only saw four deals per year.
‘Taking the L’
Wasserman’s concerns were echoed in May by Egyptian billionaire investor Nassef Sawiris, a longtime private equity backer. In an interview with the Financial Times, Sawiris described continuation funds as “the biggest scam ever,” arguing that leveraging a company that can’t be sold is fraudulent. Rather than accept losses or mark down valuations, he said, firms are using continuation vehicles to avoid crystallising underperformance.
Wasserman takes a similar view. “Instead of taking the L, they move the company into a continuation vehicle to delay the inevitable,” she said. The result, she argues, is a longer holding period, continued fee income, and the illusion of stability. But no real exit.
“These funds survive on ROI,” she added, referring to Return on Investment, used as a performance measure. “If you’re a GP, your future depends on the number you report. And that number can be influenced.” In her view, the model preserves headline returns while bypassing market discipline.
Unlike Sawiris, Wasserman stops short of calling the practice fraudulent. “No one’s breaking the law. But the economics are upside down. We’re seeing financial wizardry to keep IRRs high and fees flowing,” she said, referring to the Internal Rates of Return used as a measure in private equity.
Asked about investor appetite for continuation vehicles, a manager selector at a New York-based multi-family office said he is seeing growing skepticism among clients.
“LPs generally dislike continuation vehicles,” he told Investment Officer. “There’s a conflict of interest, and I feel these funds are being misused. I understand why some people call it a scam, or trash,” he added, speaking on condition of anonymity.
Timing the exit, or avoiding one
Unlike their early years, continuation funds are no longer limited to distressed holdings. They are now applied to so-called “trophy” assets as well. One structural problem remains: the GP is selling the asset to itself.
That self-dealing, Wasserman argues, creates an inherent conflict of interest. “The seller wants to maximise the disposition price, the buyer wants to minimise the acquisition price,” she said. “It’s the same party on both sides, which opens the door to subjective valuations.”
Even within the industry, these concerns are well known. In a 2024 report, Bain & Company, one of private equity’s closest advisers, warned that GPs frequently use continuation funds to restructure portfolio companies, recapitalise balance sheets, and “essentially cram down the existing LPs,” who must choose between exiting at a steep discount or staying invested in the hope of eventual upside. Such practices, the report noted, have “left a bad taste” in the market.
Costas Constantinou, partner at Oaklins Netherlands and head of its valuations advisory team, points to the information asymmetry at the heart of these deals. “The GP effectively negotiates with itself, often without an external market test,” he wrote in a December note. “If the price is too high, new LPs may be overpaying. If too low, legacy LPs lose out.”
Without independent third-party validation, and in cases where reporting is limited, LPs may have little visibility into whether the transaction price is fair.
Wasserman likens the process to pricing a house without ever listing it. “Maybe it’s worth a million. But maybe someone would pay more, or less, if it went to market. With continuation funds, you never know, because they don’t go to market.”
Absence of independent pricing
Regulators including the SEC, the FCA and ESMA have taken steps to increase transparency in continuation fund valuations. But enforcement is uneven, and practices still vary widely across jurisdictions. At the core, Wasserman argues, is the absence of consistently independent pricing.
Third-party valuations in continuation fund deals often rely on fairness opinions from major accounting firms. Wasserman questions whether those assessments are genuinely independent. “It’s not in a valuation firm’s interest to upset their client,” she said.
Wasserman argues that large limited partners, particularly public pension funds, have the leverage to demand better standards from the private equity industry, but rarely exercise it. “Funds like CPPIB or APG can absolutely set the tone for the industry,” she said. “But they’re not nearly using their weight enough to demand transparency or alignment.”
