Private Equity Turns to Continuation Funds as Exit Options Narrow

Back in 2020, when global markets were rattled by the pandemic, Revelstoke Capital Partners asked its investors for something unusual: more time with one of its portfolio companies, Fast Pace Health.

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Investors agreed. Instead of forcing a sale in an unfavorable market, Revelstoke shifted part of the medical clinic operator into a new vehicle and brought in fresh capital to replace those looking to cash out. This move gave some investors liquidity while avoiding a lowball exit.

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That strategy creating so-called continuation vehicles (CVs) has since gone mainstream. With private equity firms stuck in a prolonged dealmaking slowdown, CVs have surged in popularity. In fact, the market has evolved so much that some firms are now creating “CV-squared” structures, essentially continuation funds for assets already sitting in prior CVs.

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But the model isn’t without friction. Recently, Revelstoke faced pushback when it tried to use another continuation fund to hold on to Fast Pace Health longer, according to people familiar with the matter. The plan was eventually dropped, underscoring a growing tension between private equity firms eager to delay exits and investors eager to see returns.

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“There’s a lot of pressure on both sides,” said Harold Hope, global head of private market secondaries at Goldman Sachs. “But I can’t recall a situation where we went into a continuation deal expecting another continuation down the road.”

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Revelstoke declined to comment.

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While Revelstoke’s latest attempt stalled, other managers have pulled off similar strategies. Accel-KKR recently raised $1.9 billion to extend its investment in isolved, a human resources software provider, through a second continuation vehicle. Likewise, CapVest is exploring a similar move for Curium Pharma, while PAI Partners is attempting the same with ice cream giant Froneri, sources said.

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Goldman Sachs is reportedly a lead investor in both the Accel-KKR and PAI transactions, signaling strong institutional appetite for these complex deals. Though Hope wouldn’t comment on specific deals, he acknowledged that certain businesses do benefit from staying private longer.

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Why Investors Are Frustrated

The surge in continuation funds comes as private equity firms face mounting pressure to return capital. The dealmaking slump is now in its third year, and distributions have plunged. According to MSCI Inc.’s Abdulla Zaid, distributions dropped to just 7% of fund values in Q1 2025, a steep decline from the 25% average between 2015 and 2019.

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Despite their growing use, repeat continuation funds such as CV-squared deals are still relatively rare. Often, they occur when multiple assets were bundled into a prior CV, and the sponsor now wants to hold on to one standout company for even longer, said Adam Johnston, a partner at Stepstone Group.

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“Sometimes the sponsor truly believes there’s more value to unlock. Other times, lead investors want liquidity, pushing the firm to structure another continuation fund,” Johnston noted.

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Are CVs Worth the Bet?

For some investors, continuation vehicles make sense. According to Evercore Inc., single-asset CVs have outperformed traditional buyouts in recent years, while offering lower management fees.

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A case in point: Accel-KKR’s investment in isolved, which it first bought in 2011, has delivered a 19.2x gross multiple, people familiar with the matter said. Accel-KKR believes the company still has significant growth potential hence the new CV.

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Yet CV-squared deals attract more scrutiny because many investors prefer a cleaner exit via a sale or IPO. “My ideal outcome is selling to a strategic buyer who can pay a premium because of synergies,” said Amyn Hassanally, global head of private equity secondaries at Pantheon.

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The challenge? CV-squared transactions raise concerns about conflicts of interest. Private equity firms often renegotiate fees and economics when moving assets from one fund to another. That’s why Hassanally stresses the need for a “full and fair process” to establish market-based pricing.

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Unsurprisingly, some buyers avoid these complex structures altogether. “We believe the best risk-return profile is in the first chapter of a continuation deal not the second,” Johnston added.

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Continuation vehicles, and now CV-squared structures, are reshaping the private equity playbook. They offer flexibility and can unlock additional value but they also raise tough questions about transparency, alignment, and investor patience. For now, they remain a creative solution in a market where traditional exits are harder to come by but not everyone is convinced they’re the long-term answer.

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