Continuation vehicles (CVs) have been on a hot streak. Last year, more than $70 billion of GP-led secondaries closed, setting a new record. The market is evolving rapidly, with plentiful pools of secondary capital to soak up investor demand, including new sources such as ’40 Act funds. In this article, we look at some of the current trends and where they might lead.

Single- vs. Multi-Asset CVs

The last few years have seen a fairly steady mix of both single- and multi-asset CVs. A single-asset CV may be the ideal showcase for a sponsor’s “crown jewel,” allowing the asset to show its full potential with a bespoke vehicle and potentially a deeper diligence process for investors. Some fund sponsors have even raised funds dedicated to investing in single-asset CVs. Yet, multi-asset CVs also have their advantages. From the sponsor side, they can help to achieve critical mass and/or synergies and can be an effective way to clean up end-of-life funds. For investors, they provide natural diversification, which may appeal to a different investor base, and they result in netted economics, so that carry is only payable if the portfolio as a whole performs well. We expect both types to remain prominent.

Sector Specialization

Credit

Although we have worked on some large and notable credit CVs, they still represent a relatively small slice of the market. Following the recent surge in fundraising for credit funds—and the appetite for the steady returns they can bring—we expect credit CVs to be a growth area. Pricing can present a challenge, however, given that the anticipated returns from credit instruments are lower, and there may be less scope for the kind of compelling story that can be told about some buyout CVs (e.g., more capital for accretive bolt-on transactions or more runway to reach full exit velocity). Furthermore, given the self-executing nature of the assets, existing investors may be more likely to “roll” compared to some other types of CVs, which may result in a less attractive proposition for potential buyers.

VC and Growth

Growth and venture capital CVs are also less common than buyout vehicles. Although they do have more market share than credit strategies, they remain nascent, and pricing is often at a significant discount. On the face of it, these assets may look appealing for CVs, as they offer the potential for outsize returns. But dangers lurk for precisely those reasons. Accurate valuations are notoriously difficult. The smaller size of VC and growth deals can make it harder to assemble a portfolio that is large enough to justify a CV, and the lack of control compared to a buyout vehicle may hamper sponsors’ ability to proactively add value. For U.S. sponsors that are not registered with the SEC, there can also be regulatory hurdles to navigate, including structuring the CV to maintain the sponsor’s venture capital fund adviser exemption. There will be some great opportunities, but they are perhaps not for the faint of heart.

Infrastructure

Perhaps more adjacent to traditional buyout CVs, we have seen a number of infrastructure CVs and also a few funds dedicated to infrastructure secondaries (while other sponsors may invest in such deals from a mainstream secondary fund). These assets are often long term by nature, and may require significant capital, so they are in many ways a natural fit for a CV structure. They offer steadier and potentially inflation-resistant returns that can be reassuring in uncertain times, albeit typically lower than a buyout CV target return, which may be to the detriment of the upside story.

CV Ouroboros

What happens when a CV runs out of road? One option is to rinse and repeat: raise a CV for the CV. As more and more CVs are reaching the ends of their terms, and some of them have not yet found a path to exit, we are increasingly seeing these “CV squared” structures in the market. They may face more skepticism from investors regarding the business plan (including the eventual path to exit), but if the asset is attractive, and the story is compelling, then a CV squared could make sense for the same reasons that the original CV did—to provide liquidity and optionality to existing investors while allowing new investors to buy in and provide top-up dry powder if needed. Also, the investor base for the first CV is likely dominated by secondary investors, who will be familiar with CV technology and dynamics, making for an easier and more sophisticated conversation the second time around. At some point, this could even start to look more like a “private IPO.”

Disintermediation?

Financial advisors are a standard part of the process for most CV transactions. As well as sourcing investors and running auctions, they also provide strategic advice and market intelligence, and they help to manage a complex and fast-moving process. However, we have seen some CVs put together with a limited role, or no role, for a financial advisor. In some cases, these are large and sophisticated managers with the in-house expertise and resources to run such transactions effectively. In other cases, they may be small managers who are comfortable with a more ad hoc approach, and who may feel that the limited size of their CV does not justify additional costs. Looking forward, we anticipate that some of the largest managers may want to bring some CV-related workstreams in-house, especially if they are regularly raising CVs, but most likely around the margins. Another consideration is that LPs often take comfort from the involvement of an experienced and sophisticated third-party advisor, given the conflicted nature of these transactions.

The More the Merrier

Many CV transactions involve not just a CV but also a third-party buyer or sponsor flagship fund on the buy side. This is often a feature of larger deals, and we are seeing a number of outsize CVs coming to the market in 2025, supported by ever-larger secondary fundraisings. Such additional parties can help to validate pricing (in the case of a third-party buyer) and to show strong alignment and conviction (in the case of a sponsor flagship fund).

Conclusion

The CV market has come a long way in a short space of time and will continue to innovate in interesting ways. We expect further specialization, ever-larger CVs, and increasingly creative solutions for channeling secondary capital into attractive assets.

Private Equity Report Spring 2025, Vol 25, No 1