Once a niche solution forged in the aftermath of the Global Financial Crisis, GP-led secondary transactions have grown into a central pillar of the private equity secondaries ecosystem. Since 2020, these deals have accounted for roughly half of all secondary market activity by deal value — up from around a third in prior years.
The adoption of these vehicles have become increasingly widespread, with more than half of the world’s 100 largest private equity firms having now executed a GP-led transaction. Fueling this rise is the proliferation of continuation funds. Single-asset continuation vehicles, specifically, have emerged as the most dynamic and fastest-growing segment in the space. Today these transactions make up approximately 48% of continuation fund activity.
Muted M&A and IPO markets in recent years have certainly helped catalyze this growth. Amid constrained exit conditions, continuation funds have enabled GPs to hold onto high-performing assets while providing liquidity to existing investors. Last year, for example, continuation vehicles consumed 13% of PE exit activity, up from 5% in 2020 and 2021.
However, the structural case for these vehicles extends well beyond periods of market dislocation. Two of the most active years for GP-led activity — 2021 and 2024 — for example, were marked by dramatically different macroeconomic and liquidity conditions. By offering flexibility, extended ownership of outperforming assets, and liquidity options for LPs, CVs are reshaping how private equity firms think about asset stewardship, creating a new and compelling opportunity set for LPs and secondaries investors.
Much like how LP-led secondary transactions have shed their early stigma as signs of investor distress to become widely accepted tools for portfolio management, GP-led deals have undergone a similar transformation. Today, continuation vehicles offer structural advantages to GPs, offering a unique blend of flexibility, liquidity, and value creation opportunities.
For one, private equity’s fixed fund lifespans don’t necessarily align with the value creation trajectory of a fund’s underlying assets. This rigid structure has traditionally meant that GPs may have had to sell exits prematurely, leaving money on the table that was passed on to buy-side participants.
Continuation vehicles, and single-asset continuation vehicles specifically, allow GPs to extend the hold periods for trophy assets generating returns in excess of their original underwriting case to capture those gains.
With fresh capital and an extended runway, firms can pursue operational enhancements and strategic acquisitions to unlock further value. Moreover, in an environment of elevated entry prices, the opportunity to compound value in a familiar asset holds clear appeal over backing untested management teams and unproven value creation theses.
Continuation funds can play a strategic role in a private equity portfolio for LPs and secondaries investors, offering several distinct advantages. For one, unlike traditional LBOs, continuation vehicles allow GPs to leverage asymmetrical information to self-select high performing assets, reducing blind pool risks. Buy-side investors benefit from access to top-performing assets with proven management teams and growth plans over shorter duration hold periods.
While a more nascent opportunity set, the emerging performance data underscores the compelling risk-adjusted returns that continuation vehicles can offer. Early findings suggest these funds are delivering returns comparable to, or even surpassing, traditional buyout funds, all while providing the added advantages of reduced volatility and narrower return dispersion.
For example, a recent analysis by Morgan Stanley, covering continuation vehicle vintages from 2018 to 2023, found that continuation vehicles outperformed the MOICs of buyout funds across all quartiles, while also exhibiting lower loss ratios.
Additionally, similar to co-invests, single-asset continuation vehicles allow investors to tailor their exposure to specific assets or sectors that align with their investment thesis, providing greater control in portfolio construction.
Further, while GP-led transactions are often criticized for their inherent conflicts of interest, proponents argue that these vehicles offer an unmatched level of alignment between GPs and investors, surpassing what’s typically seen in traditional buyouts.
In these transactions, GPs typically roll 100% of their GP commitment and crystallized carried interest into the new vehicle. As a result, GPs often maintain ownership stakes in the continuation vehicle ranging from 5% to 25%, a significant increase compared to the 2% to 5% commitment typically required in a traditional fund.
Together, these structural advantages have sparked considerable interest in the GP-led market, particularly within the single-asset continuation vehicle segment. Lexington, Ardian, and several other firms have launched single-asset vehicle strategies this year, as they seek to expand their buy-side capabilities and tap into the opportunities these vehicles provide. Many others, too, have launched funds dedicated to investing in continuation vehicles across multi-asset and single-asset funds.
As market participants look to capitalize on these opportunities, several important considerations emerge. For LPs, the rise of continuation vehicles introduces a fresh set of choices around liquidity and reinvestment. To date, the muted distribution environment has led many allocators to take the cash. However, as mentioned, these funds offer attractive risk-adjusted returns that should not be ignored. Opting out could mean missing out on high quality assets and opportunities.
For secondaries investors, the landscape is markedly different from the traditional LP-led market. For one, these transactions involve underwriting assets instead of GPs, requiring a different skillset around diligence and monitoring. Investors must form their own thesis around the specific asset, assessing the company’s future growth potential, understanding how it fits within the broader market landscape, and evaluating whether it aligns with the GP’s demonstrated ability to drive value.
Importantly, these are often high-performing, in-demand assets, and their valuations tend to reflect that, with continuation fund deals typically priced higher than diversified LP portfolios. As such, rigor in assessing an asset’s valuation proves paramount. Further, due to the concentrated nature of these vehicles, more active monitoring is also required at the asset level.
In many ways, the skill set for these transactions mirrors that of co-investments. While these deals may carry less adverse selection risk — given that the assets are already well known to GPs and management teams — they nonetheless demand a high level of speed, execution, conviction, concentration tolerance, and buyout expertise.
Here, there are several ways Chronograph’s portfolio monitoring technology helps investors get the insights they need to best monitor and make decisions on continuation vehicle opportunities:
These capabilities not only help investors make more informed decisions upfront but also support continuous monitoring, enhancing long-term performance tracking in an increasingly sophisticated continuation vehicle market.
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