The rise of continuation funds: GPs seek solutions to LP liquidity issues

The demand for continuation funds has carried through into the last quarter of 2024 with the total number of funds closed hitting 65 in the year to December 11, 2024 (YTD), up from the previous record of 57 in 2023. 

The aggregate capital of $36bn raised in 2024 (YTD) is nearing the 2021 high of $38bn, and more new managers are turning to continuation funds for the first time in 2024 – underlining how this tool is becoming increasingly common for GPs looking to extend the holding period of promising assets at the tail end of a fund’s lifecycle. 

The growth of continuation funds is a sign of the times across private capital – the lack of exit activity has created a liquidity crunch that has tested the GP-LP relationship since the start of the rate rise cycle in March 2022. 

In response, continuation funds were one of the strategies increasingly used by GPs in 2024 to strengthen the consistency of distributed to paid-in capital (DPI) and increase the steady flow of distributions needed to start the cycle anew.

Fig. 1: Continuation funds an increasingly popular option for GPs
Multi-asset and single-asset continuation funds closed and aggregate capital raised, 2018 – December 2024

_{Source: Preqin Pro. Data as of December 11, 2024}

In the year-to-date 2024, the proportion of multi-asset and single-asset transactions leveled out, with a roughly equal (32–33) split (Fig. 1). For the first time, the difference between single and multi is weighted toward single-asset funds, albeit by just one transaction. 

The tipping point from multi-asset to single-asset fund types in 2024 contrasts starkly with the split back in 2021 when 39 continuation funds (71%) were multi-asset and just 16 were single-asset (29%). This change can be partly explained by the shift away from using continuation funds to address so-called ‘zombie portfolios’, says Joseph Smith, Co-Head of the Private Equity Funds Group, Schulte Roth & Zabel.

Before the liquidity crisis impelled the growth of continuation funds, they were primarily used to roll over funds held beyond their investment period. The historic propensity to sometimes put underperforming assets into continuation funds, and the circular nature of the asset movements (secondaries activity has been described as a ‘sell-to-yourself bandwagon’), has been a source of skepticism from those inside and outside of the private capital tent.

But the ‘great boom’ in GP-led secondaries that we see today, Smith adds, is intended ‘to help GPs grow unicorns’ on behalf of secondaries funds while providing much-needed liquidity to LPs that had invested on a primary basis, hence the swing towards single-asset funds.

LPs take continuation funds back to first principle

Skepticism aside, private capital participants approach continuation funds with the same level of consideration as any other investment decision. Jennifer Choi, CEO of the Institutional Limited Partner Association, the 7,000-member LP trade association based in Washington, told Preqin news in December that ‘LPs are coming to different conclusions on continuation vehicles’.  

She added: ‘We always go back to first principles: if it’s a high-quality asset, why is this the best path to exit, as opposed to a clean or a conventional exit? If you're transacting on the vehicle early in the fund’s life, why? Why not let it stay in the fund a bit longer? And provided GPs have good answers to these questions, I think LPs can get comfortable.’ 

Despite the raised eyebrows around GP-led secondaries activity, LPs continue to broadly show confidence in continuation funds and data from 2024 shows more new GPs than ever before embraced the vehicle (Fig. 2). North America and Europe led this growth, with 34 managers making their continuation fund debut in 2024 in North America and 20 across Europe.

Fig. 2: More GPs than ever before used a continuation vehicle for the first time in 2024 
Number of managers closing their first-ever continuation fund by manager region, 2018 – December 2024 

_{Source: Preqin Pro. Data as of December 11, 2024}

Continuation funds can provide access to great assets that quickly generate value and shorten the distance to returns and much-needed liquidity – and the data shows that LPs and GPs are leaning into the growth. With 2025 now upon us, the wheel of deal volume, exits, liquidity and fundraising success is widely predicted to continue turning and even gather momentum. 

However, this likely won’t diminish the attractiveness of continuation vehicles with proven assets, which are usually locked in for around half that of the average private equity fund (3-5 years vs. 10 years), and have the potential for higher returns as reflected in the data. In years to come, continuation funds may even feature in the legacies of $1bn companies if enough unicorns grow out of the current surge in new funds.

Who’s ‘big’ in continuation funds?

Fig. 3: Top GPs by all-time aggregate capital raised for continuation funds 

_{Source: Preqin Pro. Data as of December 11, 2024}

Fig. 4: All-time largest single-asset continuation funds

_{Source: Preqin Pro. Data as of December 11, 2024}

Fig. 5: All-time largest multi-asset continuation funds

_{Source: Preqin Pro. Data as of December 11, 2024}

Fig. 6: Number of all-time continuation fund commitments by LP type 

_{Source: Preqin Pro. Data as of December 11, 2024
*All GPs who manage secondaries funds/funds dedicated to GP-leds have been classified as secondary fund of funds managers, even if that is not their classification on Preqin Pro.}

_{The opinions and facts included within the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin providing the information in this content accepts no liability for any decisions taken in relation to the above.}