Finding Value In Continuation Funds

As the growth in GP-led secondaries continues, LPs are coming under increasing due diligence pressure to handle an unprecedented number of sell/roll decisions. The use of continuation vehicles has become part of the common vernacular. They are now widely regarded as a useful liquidity tool for GPs, and a tactical portfolio management tool for LPs.

With so many GP-led transactions in play – they accounted for 12% of all PE exits in 2024 and 15% in the first half of 2025 – LPs are having to find strategic ways to avoid rolling into deals that fail to live up to their promise, and missing out on those that have the potential to deliver buyout-level returns.

Brokers are projecting a record year for secondaries as the quality of deal flow improves. According to Evercore, the transaction volume reached an all-time high of $160 billion. Yet already through the first six months of 2025, transactions have totalled $102 billion; up from $72 billion in 1H24.

At that pace, the $200 billion barrier is likely to be broken.

To underscore their popularity, GP-leds accounted for 44% of all secondary transactions in 2024.

“GP-led transactions have become about half of the total secondary markets in each of the last five years. And in 2025 they continue to be a significant part of the market. We think that as familiarity and acceptance of GP-leds increase, they will continue to be one of the potential exit routes that GPs more systematically consider for their businesses; certainly their top performing businesses,” comments Valerie Handal, Managing Director, HarbourVest.

In an article published in September 2024, HarbourVest noted that more than three quarters (80%) of the top 100 GPs have already accessed the continuation market. More mid-market players are now also entering the fray, keen to lock in further alpha from mature assets that they wish to avoid prematurely selling as existing funds winds down.

Technology, as well as deeper and richer data at the asset level, is likely to play a key role in how LPs improve the way they evaluate these deals. Having a theoretical view is one thing; putting it into practice and securing further risk-adjusted returns is another. In that regard, investors have to be realistic and honest with themselves as to what they believe will be feasible based on time constraints, internal bandwidth constraints etc.

As Handal posits: “LPs should ask themselves: Do they have the capabilities to evaluate these transactions? And if not, what are the alternatives? There are various strategies that we see being implemented by different LPs, which will be outlined during our presentation at IPEM’s LP Congress.”

Asymmetric risk opportunities

Improving one’s selectivity takes on added importance for LPs given the potential asymmetric risk/return profile on offer. Given that these are typically mature, trophy assets, there is lower downside risk. According to HarbourVest’s insight piece, the sources of continuation vehicle alpha include: i) positive selection bias of high performing portfolio companies, (ii) mitigated change-of-control or blind pool risk, and (iii) transaction structures that look to optimise GP and LP alignment.  

“The market is now mature enough that you are seeing realised performance of single asset CVs that suggests these are good assets. With active selection, the market data indicates that you can generate buyout-type returns in these GP-led opportunities with lower risk,” says Handal.

One factor for LPs to consider when deciding whether to sell or roll is whether the GP is offering a single asset CV or a multi-asset CV, as this will alter future return expectations.

Naturally MACVs are inherently more complex to structure and close given that there could be anywhere from two to 10 different companies involved. As a result, overall performance will be mixed as there will be varying degrees of quality in the portfolio. However, what they do offer is more regular cash flows over a period of time. As a result, from an IRR and liquidity perspective, a multi-asset CV may be more attractive to certain investors.

“You can achieve very attractive returns with both multi asset and single transactions,” explains Handal. “However, we view single asset CVs more as having buyout-like returns, whereas multi-asset CVs have more secondary-like characteristics and returns.”

Ultimately, there's room for both in a portfolio. They compliment each other and provide a flexible option for LPs as they make tactical changes to their overall PE allocation.

Pricing for CVs has remained robust.

According to the Campbell Lutyens Secondary Market Overview Report 2025, 52% of GP-led transactions were priced at or above par through the first six months of the year; up from 41% last year.

While this is further validates how importantly investors view CVs, the fact that these deals are priced on a bottom-up basis means that the extent to which they exceed par is really more of function of how likely the deal will be completed. One has to perform fundamental analysis on the company – or companies – and price it to a certain return. Then compare the price to the fund’s NAV to determine whether it is good value. A transaction priced at 10% above par essentially means it is more feasible than a deal priced at 70% of NAV.

Handal notes there is very little correlation between discounts or premiums and the ultimate performance of a business:

“If you've done your analysis correctly the fact that you paid a discount or a premium should not really matter.

The NAV is a benchmark of what the GP believes is the fair value of the business. Some GPs are a little bit more aggressive with their valuations, others are more conservative. At the end of the day, as a buyer, you need to judge for yourself what the business is worth.”