Private equity has a liquidity problem.
Managers want to keep owning their best companies. Investors, meanwhile, may want their money back.
That tension is helping drive the rapid growth of continuation funds, a structure that gives both sides an option. A manager can move an existing company into a new vehicle it controls, while existing investors can either take cash or roll their investment into the new fund.
On paper, it looks like a simple solution.
But there is a bigger question underneath it:
When investors have the option to leave, does that make them less likely to speak up about the deal?
That is where the idea of “exit and voice” becomes especially interesting.
THE SECONDARY MARKET IS GETTING MUCH BIGGER
The numbers show just how quickly this market is developing.
Evercore counted $121 billion of secondary-market volume in the first half of 2026, up 19% from the same period a year earlier.
Within that:
- $65 billion was GP-led
- $56 billion was LP-led
- GP-led transactions increased 35%
- LP-led transactions increased 4%
Jefferies came to a slightly different total, reporting $118 billion of secondary volume, including $62 billion of GP-led transactions.
The difference comes from how the firms measure the market, but the broader message is the same.
GP-led secondaries are becoming a major part of private-market liquidity.
Single-asset continuation vehicles are particularly important.
Evercore counted $34 billion of single-asset continuation volume in the first half, up 88% year over year.
That matters because these transactions are increasingly being used when a manager believes one of its portfolio companies still has significant value to unlock.
Instead of selling the company today, the manager creates another vehicle and keeps the investment going.
THE MANAGER WANTS TO STAY. THE LP MAY WANT OUT.
This is where continuation funds get interesting.
Imagine a private equity fund owns a company that has performed extremely well.
The manager believes there is more upside ahead.
But the original fund is reaching the end of its life, and investors may want liquidity.
A traditional exit would mean selling the company.
A continuation fund creates another option.
The manager transfers the asset into a new vehicle and gives existing LPs a choice:
Take the cash.
or
Roll the investment into the new fund and stay invested.
That flexibility is one reason continuation funds have become so popular.
But the decision is not simply about whether an investor wants liquidity.
It also comes down to price, fees, carry, future upside and the process used to determine the deal terms.
THIS IS WHERE ALBERT HIRSCHMAN’S IDEA OF “EXIT AND VOICE” FITS
Economist Albert Hirschman developed a simple framework for how people respond when they are unhappy with an organization.
They can exit.
They can use their voice to try to change things.
Or they can stay and accept the situation.
A continuation fund essentially puts these choices in front of an LP.
Exit: Sell your interest and take the cash.
Stay: Roll your investment into the continuation vehicle.
Voice: Question the transaction, negotiate terms and use advisory committees to influence the process.
And there is an important tension here.
The investors who have the strongest opinions about the transaction may also be the ones most willing to simply take the money and leave.
That can weaken the pressure on the remaining investors to challenge the deal.
MOST LPs ARE TAKING THE EXIT
The participation data is revealing.
Jefferies reported that LP rollover participation in continuation vehicles averaged just 14%.
In other words, most investors chose not to roll their money into the new vehicle.
That does not tell us why they left.
Some may simply have wanted liquidity.
Others may have preferred the economics of taking cash.
But it raises an important question:
If most investors exit, who is left to challenge the terms of the transaction?
That question becomes even more important because the manager is involved on both sides of the process.
The GP is trying to sell an asset into a new vehicle that it will continue to manage.
That creates an obvious need for strong governance and a process that gives LPs enough information and time to make an informed decision.
THE PRICE MATTERS MORE THAN EVER
Pricing is another area where the continuation-fund structure deserves attention.
Jefferies reported that LP portfolios sold at an average of 87% of NAV during the first half of 2026.
For venture investments, the figure was even lower at 79% of NAV.
Meanwhile, Evercore reported that 86% of single-asset continuation transactions priced at or above NAV.
That included:
- 71% at par
- 14% above NAV
At first glance, the difference looks striking.
An LP selling an interest independently may receive a discount to NAV, while a continuation transaction organized by the manager can happen around the manager’s own valuation.
But the comparison is not perfectly like-for-like.
LP-led transactions typically involve diversified portfolios.
Continuation vehicles often involve a single, high-conviction company.
And NAV itself is based on the manager’s valuation.
So a transaction at NAV does not automatically mean the underlying asset is worth exactly that amount in the broader market.
A negotiated price is not necessarily the same thing as independently verified fair value.
That distinction is important for investors.
GPs HAVE SKIN IN THE GAME TOO
There is another side to the equation.
Caldwell reported that the average GP commitment to a continuation vehicle was around 11%.
It also found that GPs rolled 90% or more of their realized carry in 85% of deals.
That means managers can have meaningful capital at risk alongside their LPs.
But managers can also receive carried interest if the new vehicle performs well.
Some continuation vehicles even include arrangements known as “super carry”, where the GP receives a larger share of profits once certain return thresholds are reached.
That does not automatically make a deal unattractive.
But it does create another layer that LPs need to understand.
The more complicated the economics become, the more important the transaction process becomes.
ILPA WANTS TO GIVE LPs MORE TIME AND MORE CHOICE
The Institutional Limited Partners Association has proposed changes that could materially alter how these deals work.
Under the June draft guidance:
- The minimum election period would increase to 30 business days
- LPs would have an option to remain in the existing fund
- Investors would have more flexibility around partial sell and roll decisions
- The advisory committee would meet without the GP present
- GPs would be encouraged to run broader processes with enough competition among potential buyers
That extra time matters.
A complex transaction involving valuation, fees, carry, governance and future upside is not something every LP can evaluate overnight.
Giving investors more time can make the decision more informed.
It can also strengthen their ability to use voice, rather than simply choosing between accepting the deal or walking away.
THE BIG CHANGE: LIQUIDITY IS BECOMING PART OF THE DESIGN
Private-market investors have historically accepted illiquidity as part of the bargain.
But that is changing.
Caldwell described secondary-market liquidity as moving from an occasional tactical solution to a core design principle.
That is a significant shift.
If investors increasingly expect opportunities to sell, roll or partially exit their positions, secondary liquidity becomes part of how private-market funds are structured from the beginning.
And that could have broader consequences.
Continuation funds may become a normal part of the lifecycle of a private company, rather than an unusual solution when a traditional exit is unavailable.
THE DISTRIBUTION PROBLEM IS HARD TO IGNORE
There is a simple reason investors want more liquidity.
Cash distributions have been weak.
Jefferies reported that annual distribution yield from LP portfolios remained around 10% in the first half of 2026, compared with a historical average of 25% since 2001.
That is a substantial difference.
When IPOs and M&A exits slow down, investors receive less cash from their private-market portfolios.
Continuation funds can help fill that gap.
For an LP that needs liquidity, getting cash from a secondary transaction can be more attractive than waiting several more years for a traditional exit.
BUT THERE IS STILL ONE BIG QUESTION
The biggest unanswered question may be what an independent buyer would have paid for the same asset.
A continuation fund may establish a transaction price.
But that does not necessarily mean the price is independently validated.
The buyer is selected through a process run by the manager.
The manager also determines the valuation of the asset.
And the manager will continue managing the company after the transaction.
That is why process matters just as much as price.
ILPA’s proposed guidance would require more transparency around final-round bids, potentially giving LPs a better understanding of what other buyers were willing to pay.
That could make it easier to judge whether the final transaction price was genuinely competitive.
WHAT THIS MEANS FOR PRIVATE-MARKET INVESTORS
Continuation funds are not necessarily good or bad.
They are a response to a very real problem.
Managers want more time with companies they believe still have upside.
LPs want liquidity.
The continuation vehicle tries to solve both problems.
But the structure also creates a complicated set of incentives.
For investors, the key questions are increasingly:
- What price is being offered?
- How was that price determined?
- Who else bid for the asset?
- What are the new fees and carry terms?
- What happens if I want to sell only part of my position?
- Can I remain in the existing fund?
- How much capital is the GP committing?
- Does the GP have additional economic incentives tied to performance?
- How much time do I have to make the decision?
Those questions determine whether investors are genuinely being given a choice or simply being presented with a transaction that is difficult to challenge.
THE BIGGER PRIVATE-MARKET SHIFT
The rise of continuation funds says something bigger about private markets.
The old model was relatively straightforward:
Buy a company → grow it → sell it → return capital to investors.
The new model is becoming more flexible:
Buy → grow → extend ownership → create liquidity → give investors the option to exit or continue.
That flexibility can be valuable.
But it also means the traditional boundaries between holding, selling and raising a new fund are becoming less clear.
For LPs, that makes governance increasingly important.
Because when the manager can offer you an exit, a rollover and a new investment opportunity in the same transaction, the question is no longer simply “Do I want to sell?”
It becomes:
“Am I getting a fair choice?”
And that may be the most important question continuation funds will have to answer as they become a permanent feature of private markets.