Continuation vehicle
Also known as: GP-led secondary, Continuation fund, Single-asset continuation
A fund sells an asset to a new fund it also manages. Existing investors choose cash or staying in — and the manager is on both sides.
1 · SnapshotThe one idea to remember
2 · BeginnerWhat actually happens?
Investment funds have a fixed life. After ten years or so, whatever they own has to be sold and the money returned. That deadline usually works fine, and sometimes it arrives at the wrong moment — the business still has years of growth in it, or the market for selling it is shut.
A continuation vehicle is the answer that has grown up. The fund sells the asset to a brand new fund, run by the same manager, with new investors in it. The existing investors are offered a choice: take the cash, or roll into the new vehicle and stay invested.
The obvious problem is right on the surface. The manager is the seller and the buyer. It is setting a price at which it sells something to itself, and it will earn fees on the new fund for years afterwards.
The industry's answer is to make the price come from outside. New investors, with their own money and no relationship to the outcome, negotiate what the asset is worth. If they are real, there is a real price. If they are not, this is a manager marking its own homework.
- 1
Decision4–8 wks
The manager concludes the asset has more to give than the fund's remaining life allows.
- 2
Price discovery6–12 wks
New investors are found and a price is negotiated, which is the only external check on the valuation.
- 3
Advisory committee2–4 wks
The existing fund's investor committee reviews the conflict and consents or does not.
- 4
Investor election3–6 wks
Each existing investor chooses cash now or a continued stake, usually on published terms.
- 5
Closing2–4 wks
The new vehicle closes, the sellers are paid and the manager's new terms begin.
Is there a real price — The new investors decides. Without genuine third-party money setting the price, this is a manager valuing an asset it is selling to itself.
Conflict consent — The advisory committee decides. The manager is on both sides of the sale, and this is the mechanism the industry uses to handle that.
Who is on the deal
| Who | Side | What they are actually for |
|---|---|---|
| The manager | Both | Is selling an asset to a fund it also manages, which is the conflict the whole structure has to handle. |
| Existing investors | Sell side | Choose between cash now and a continued stake, on terms they did not negotiate. |
| New investors | Buy side | Set the price, and are the only genuine external check on the valuation. |
| The advisory committee | Neither | Reviews the conflict on behalf of the existing fund and consents or does not. |
| The secondaries advisers | Sell side | Run the process and are paid on completing it. |
- Desk
- Leveraged Finance
- Seller and buyer
- Funds managed by the same firm
- Existing investors
- Choose between cash now and a continued stake
- Price set by
- New third-party investors, or it is not a price
- Reviewed by
- The existing fund's advisory committee
What decides whether it completes
Not how hard this is, and not a rating — there is deliberately no total. It says which of five blockers decides whether this transaction happens at all, in the same order on all 70 transaction types so they can be compared. This publication's own reading; see the notice below.
- Pricedecides it
- Financingmatters
- Approvalmatters
- Diligencebarely applies
- Executiondecides it
What decides it here. The manager is on both sides of the sale, so the price has to be set by somebody else or it is not a price at all. Everything else is governance: whether the conflict was properly disclosed, whether the advisory committee genuinely consented, and whether existing investors had a real choice.
3 · IntermediateHow it runs in practice
Why they exist
- A good asset in an ending fund. The manager believes there is more to come and the fund cannot hold it.
- No exit available. No buyer, no listing window — see the exit problem on the buyout page.
- Concentration. A single asset that has grown into too large a share of the fund.
- Distributions. Investors who want capital back get it, without the asset being sold to somebody else.
The choice existing investors face
Take cash at the transaction price, or roll into the new vehicle. Rolling is usually offered on the same terms as before or better; taking cash is the safe answer. Neither is obviously right, and the investor is being asked to decide on a valuation set by a process its own manager ran.
A third option — status quo — does not exist, and that is the part that makes some investors uncomfortable.
The governance
- The advisory committee of the existing fund reviews the conflict and consents.
- An independent fairness opinion is frequently obtained — see what one actually says, which is narrower than most readers assume.
- A competitive process among potential new investors, which is where the price should come from.
The manager's new terms
A new fund means new fees and a new performance hurdle. Managers frequently roll their existing carried interest into the new vehicle rather than crystallising it, which is the strongest available signal that they believe their own case — and whether they did is disclosed.
4 · AdvancedThe numbers & the documents
The conflict, stated precisely
The manager owes duties to the selling fund's investors and will owe duties to the buying fund's. It sets the price, controls the information, runs the process and benefits from the transaction happening. That is not a hidden conflict; it is the structure, and everybody involved says so.
What makes a particular transaction defensible is procedural: a genuinely competitive price-setting process, full disclosure of the manager's economics, informed consent from the advisory committee, and a real choice for existing investors. Where those are present the conflict is managed. Where the price came from one relationship investor who was going to say yes, it is not.
What a rolling investor should model
- The entry multiple against what the asset was bought for and what has changed since.
- The leverage in the new vehicle, which is frequently higher than in the old one.
- The new fee load over the expected remaining hold.
- How much of the manager's own carried interest rolled rather than being taken in cash.
Why this became common
Because the alternative disappeared. When trade buyers are cautious, sponsors are not buying from each other and listing windows are shut, a fund reaching the end of its life has an asset and no market. The continuation vehicle is a market that the manager creates, and its growth is therefore a direct read on how difficult ordinary exits have become.
That is worth noticing as a signal about the wider market rather than about any one asset.
What is genuinely good about it
A forced sale into a bad market destroys value, and a rule that requires one is a bad rule. If a business needs three more years and the fund has none, a structure that lets patient investors continue and impatient ones exit at a fair price is better than either forcing everybody out or trapping everybody in. The whole argument is about that word "fair", and it is settled by process rather than by intention.
The formulas above are standard textbook formulations, simplified for teaching. They explain the mechanism — they are not a valuation tool, and they will not reproduce a dealer’s price.
5 · Desk notesHow people on the deal think about it
Now say it back
Close the page and give Continuation vehicle in four sentences. It takes a minute and it is the only way to find out whether reading it was enough.
- Who wants what — name both sides and what each one is actually trying to get.
- What has to happen, in order — the three or four stages, not the whole timetable.
- Where the money comes from — cash, new shares, or borrowed; somebody has to fund it.
- What kills it — the ordinary way, not the dramatic one.
Where this transaction shows up elsewhere
- EasyDividend recapitalisationDealA company borrows more and pays the proceeds to its owners
- EasyFairness opinionDealA narrow statement, on a stated date, about one specific offer
- EasyLeveraged buyoutDealA company bought largely with borrowed money, secured on the company itself
- MediumStapled financingDealThe seller's own bank offers a pre-arranged financing package to whoever buys — and sits on both sides of the same table