Continuation funds: What they mean for private equity investors and vendors
Private equity (PE) continues to be a popular route for buyers and investors, but with that sophistication comes complexity – especially when it comes to deal structures.
What are continuation funds?
Continuation funds involve assets – typically businesses or groups – moving between funds managed by the same PE firm. These structures are becoming increasingly common, driven by two main factors:
- Retention of high-performing assets: Fund managers want to hold onto strong performers for longer, aiming to maximise returns.
- Market conditions: Slower deal activity in certain sectors means some assets can’t be sold at valuations that satisfy investors, prompting managers to roll them into new vehicles.
Why does this matter?
Average PE hold periods are now stretching toward six years. For vendors considering an initial PE investment – whether direct or indirect – this trend has real implications. In many deals, vendors are expected to “roll” a portion of their equity forward, retaining a stake until a future transaction. This can be attractive, as rolled equity often delivers higher returns than the original deal.
However, it’s critical to understand:
- The overarching plan in the new structure
- How your stake will look in terms of value, timing, and conditions
Continuation funds can introduce additional layers of complexity. Equity may roll multiple times into different vehicles, creating both upside and risk. Legal and commercial nuances matter enormously here. Engaging advisers who understand these instruments is essential to assess offers and negotiate fair structures.
We’re here to help
Private equity can unlock significant growth when deployed in the right setting – businesses with clear potential and capable teams. However, markets shift, and strategies evolve. Continuation funds are here to stay, so if you’re rolling equity forward, make sure you have the right guidance to balance risk and reward. That’s where our specialist Corporate Finance advisory team can support, with our advisers having significant experience in this area. To discuss your specific circumstances, get in touch via the form below.
