What is a 'continuation vehicle', and when do sponsors use it?
A continuation vehicle (CV) is a new fund that buys an existing asset from the old fund. It allows the hold to be extended under fund-lifecycle pressure.
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Old Fund (Year 8-10, lifecycle ending)
↓ sells asset
CV (newly raised, dedicated to this asset)
↓ holds asset for another 3-5 years
LP investors in the CV (often the same LPs as the Old Fund)
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Deep diveShow more details
| Trigger | Rationale |
|---|---|
| Star asset in the old fund | Sponsor wants to keep holding, but the old fund has to exit |
| Buy-and-Build platform | The roll-up strategy needs 7–10 years |
| Poor market timing | The old fund has to exit, but market multiples are low |
| LP liquidity | Some LPs want to cash out, others want to hold |
| Aspect | Continuation vehicle | Standard exit |
|---|---|---|
| Buyer | new fund (same GP) | external buyer |
| Pricing | fairness opinion required | market price |
| LP optionality | roll or sell | sell only |
| GP conflict | high (sponsor sells to itself) | low |
| Compliance requirements | strict (independent valuation, LPAC approval) | standard |
The CV market grew strongly from 2020 to 2024 — over $100B of volume per year globally. The middle-market segment is still small, but rising.
- Conflict of interest: the GP sets pricing — banks need a fairness opinion
- LP voting: not all LPs want to roll, some want to cash out — structured LP optionality is needed
Question: "Why has the CV trend risen?"
Answer: "Three drivers: (1) fund-lifecycle pressure on star assets, (2) Buy-and-Build platforms need longer hold periods, (3) LP demand for liquidity options. CVs are increasingly becoming a standard option in the middle market"