The average hold period for private equity investments hit 8.5 years in 2024—more than double the 4.1 years observed in 2007—creating a backlog of 12,552 PE-backed companies equivalent to 8.5-9 years of exits at recent rates. Continuation vehicle contributions jumped to 20% of distributions from mature PE funds, up from just 6% pre-2021, as general partners restructure portfolios to manage extended hold periods while providing LP liquidity.
The Hold Period Extension Crisis
Private equity's extended hold period problem reflects multiple converging pressures. Funds raised during the 2019-2021 vintage years deployed capital at peak valuations, making exits at attractive multiples challenging in the current environment. By 2025, the median hold period reached 5.8 years, reflecting deals struck at high valuations requiring additional time to demonstrate value creation justifying exits.
The inventory of PE-backed companies grew to 12,552 by late 2024—equivalent to 8.5-9 years of exits at recent rates. This backlog remains a central challenge pressuring returns and fundraising even as exit activity shows signs of recovery. Between 2016-2020, only 6% of contributions to continuation funds occurred relative to distributions from mature PE funds. However, from 2021 through Q3 2025, this average jumped to 20%, reflecting a noticeable uptick in GP-led secondary activity.
Impact on Fund Economics
Extended hold periods fundamentally alter fund economics. Management fees continue accruing throughout extended hold periods, reducing net LP returns. Carry calculations delay as funds struggle to reach preferred return hurdles within original fund terms. Limited partners facing extended capital lockup periods grow frustrated with liquidity constraints.
For general partners, extended hold periods create strategic challenges. Fund lives approaching or exceeding 12-15 years (including extension periods) pressure GPs to demonstrate continued value creation justifying delayed exits. LPs increasingly demand evidence that holding periods reflect intentional value maximization rather than inability to execute exits.
Continuation Vehicles as Restructuring Tools
Continuation vehicles—structures allowing GPs to transfer portfolio companies from mature funds to newly formed vehicles—have evolved from niche solutions to mainstream restructuring tools addressing extended hold period challenges.
How Continuation Vehicles Function
In typical continuation vehicle transactions, GPs establish new investment vehicles specifically to acquire portfolio companies from existing funds approaching end of life. Existing LPs can choose to roll their interests into continuation vehicles (maintaining exposure to specific portfolio companies they believe will appreciate further) or exit by selling to new investors purchasing into the continuation vehicle.
This structure provides liquidity to LPs seeking exits while allowing other LPs and the GP to maintain ownership under fresh fund terms with extended time horizons. Continuation vehicles typically feature new management fee and carry structures, though terms vary significantly across transactions based on negotiation dynamics and portfolio company quality.
Market Growth and Adoption
GP-led secondaries reached $75 billion in 2024, accounting for nearly half of all secondary market activity. Continuation vehicles now represent 16% of sponsor exit volume—demonstrating their evolution from exceptional solutions to routine liquidity tools.
The dramatic increase from 6% to 20% of distributions being funded by continuation vehicle contributions rather than portfolio company exits signals fundamental structural change. Rather than forcing exits of companies requiring additional hold periods, GPs increasingly use continuation vehicles to reset fund terms while providing existing LP liquidity.
LP Perspectives and Concerns
While continuation vehicles provide valuable liquidity mechanisms, they create tensions between GP and LP interests that require careful management.
Valuation and Pricing Challenges
The fundamental challenge in continuation vehicle transactions involves establishing fair valuation for portfolio companies transferring between vehicles. GPs selling companies from existing funds to continuation vehicles they also manage face inherent conflicts—incentives to value companies high for existing fund performance versus low for continuation vehicle entry pricing.
Most continuation vehicle transactions now involve independent fairness opinions or third-party valuations attempting to establish objective pricing. However, LPs scrutinize these valuations carefully, particularly when GPs receive fresh carry on continuation vehicle appreciation after already earning fees managing companies in original funds.
Roll Versus Sell Decisions
When continuation vehicles are proposed, existing LPs face complex decisions about whether to roll interests into new vehicles or sell to incoming investors. This decision requires assessing whether portfolio companies will appreciate sufficiently to justify additional hold periods and whether continuation vehicle economics (management fees and carry) compensate for extended capital lockup.
LPs without capacity or appetite for additional exposure to specific companies appreciate liquidity options continuation vehicles provide. However, LPs who would have preferred rolling but lacked information to make informed decisions relative to new investors entering with extensive diligence feel disadvantaged by information asymmetries.
Fee and Carry Structures
Continuation vehicle economics vary significantly. Some structures feature reduced management fees or preferred return credits recognizing existing LPs' prior fee payments. Others establish standard new fund economics that existing LPs view as double-charging for the same portfolio company management.
The negotiation dynamics around continuation vehicle terms reflect broader LP-GP relationship strength. Well-regarded GPs with strong track records command more favorable continuation vehicle economics, while GPs with disappointing performance face pressure for LP-friendly terms or struggle to execute continuation vehicle transactions entirely.
Private Credit Applications
Continuation vehicle structures have expanded beyond private equity into private credit, where they address different but equally pressing challenges.
Extended Hold Periods in Credit Portfolios
Private credit managers use continuation vehicle structures for portfolio credits that haven't been able to exit to original timelines and require refinancings, term amendments, or maturity extensions. In workout situations, extended hold periods become necessary to maximize recoveries rather than forcing premature sales at discounts.
Private credit funds also use continuation vehicle deals to parcel up existing loan portfolios and sell to secondary investors as a way to expedite payouts to existing investors. This approach provides liquidity without selling loans at distressed prices while allowing credit managers to realize fees on portfolio management through transaction completion.
Operational Differences from PE Continuation Vehicles
Credit continuation vehicles operate somewhat differently from equity continuation vehicles. Credit portfolios transfer at marks closer to par or based on objective pricing from secondary markets, reducing valuation disputes common in equity continuation vehicle transactions.
However, credit continuation vehicles create unique operational complexity around servicing arrangements, borrower relationships, and intercreditor dynamics when loan ownership transfers between fund vehicles managed by the same credit firm.
Regulatory and Governance Considerations
Continuation vehicle transactions attract regulatory scrutiny and require robust governance frameworks protecting LP interests.
Conflicts of Interest Management
SEC examinations increasingly focus on how GPs manage conflicts inherent in continuation vehicle transactions. Key scrutiny areas include whether independent valuation processes establish fair pricing, how GPs disclose economic interests in continuation vehicles to existing LPs, and whether GPs provide existing LPs sufficient information to make informed roll-or-sell decisions.
Best practices emerging from regulatory guidance include independent fairness opinions for valuations, LP advisory committee approvals for continuation vehicle terms, and disclosure of all GP economic interests in both existing and continuation vehicles.
Disclosure and Transparency Requirements
Continuation vehicle transactions require extensive disclosure to existing LPs—the transaction rationale, valuation methodologies, continuation vehicle terms, GP economics, and information about incoming investors. This disclosure enables informed LP decisions about rolling versus selling interests.
Regulatory expectations continue evolving as continuation vehicle usage grows. Early transactions featured limited disclosure and standardized processes. Current expectations demand comprehensive transparency and LP-friendly governance that may include independent committee approvals or majority LP vote requirements for transaction approval.
Operational Implementation
Executing continuation vehicle transactions requires sophisticated operational capabilities managing complex restructurings efficiently.
Transaction Structuring and Documentation
Continuation vehicle transactions involve extensive legal documentation—purchase agreements transferring portfolio companies, continuation vehicle formation documents, LP election materials, and regulatory filings. This documentation must address both transaction mechanics and ongoing governance of continuation vehicles.
Fund administrators play critical roles in continuation vehicle execution—calculating existing LP ownership percentages, processing LP elections to roll or sell, managing capital contributions from new investors, and establishing accounting records for newly formed vehicles.
Portfolio Company Transition
Transferring portfolio companies between fund vehicles requires careful operational coordination. Board composition may change as different investors gain or lose representation. Management agreements might require amendment. Financing arrangements may need creditor consents for ownership changes.
Fund administrators must ensure clean breaks between old and new vehicles—final distributions from existing funds to selling LPs, new capital contributions to continuation vehicles from rolling and new investors, and clear demarcation of when portfolio companies' economics shift between structures.
Future Evolution and Best Practices
As continuation vehicles become more common, market practices continue evolving toward greater standardization and LP protection.
Standardization of Terms and Processes
Industry organizations are developing recommended practices for continuation vehicle transactions—suggested governance frameworks, disclosure standards, and valuation approaches. This standardization reduces transaction costs and uncertainty while establishing baseline LP protections.
Technology Platforms Supporting Restructuring
Specialized platforms are emerging to facilitate continuation vehicle transactions—managing LP election processes, coordinating new investor onboarding, processing complex waterfall calculations across multiple fund vehicles, and maintaining comprehensive transaction audit trails.
These platforms reduce continuation vehicle execution timelines and administrative costs while improving accuracy and compliance with governance requirements.
Key Takeaways
- • Average hold periods hit 8.5 years in 2024—more than double the 4.1 years in 2007—creating a backlog of 12,552 PE-backed companies equivalent to 8.5-9 years of exits at recent rates, fundamentally altering fund economics.
- • Continuation vehicle contributions jumped to 20% of distributions from mature PE funds (from 6% pre-2021), with GP-led secondaries reaching $75 billion in 2024 and representing 16% of sponsor exit volume.
- • Continuation vehicles allow GPs to transfer portfolio companies from mature funds to newly formed vehicles, providing LP liquidity options while resetting fund terms with extended time horizons for companies requiring additional hold periods.
- • Valuation conflicts arise when GPs sell companies from existing funds to continuation vehicles they also manage, requiring independent fairness opinions or third-party valuations to establish objective pricing protecting LP interests.
- • Private credit managers use continuation vehicles for portfolio credits unable to exit original timelines, requiring refinancings or extensions, and to parcel existing loan portfolios for sale to secondary investors expediting LP payouts.
- • SEC examinations focus on conflict management—independent valuation processes, LP advisory committee approvals, comprehensive disclosure of GP economics, and ensuring existing LPs receive sufficient information for informed roll-or-sell decisions.
Navigate fund restructuring and continuation vehicle complexity with specialized administration capabilities. Polibit's platform manages LP election processing, multi-vehicle waterfall calculations, complex investor transitions, and comprehensive transaction audit trails—delivering the operational precision continuation vehicle transactions demand. Explore Fund Administration Features or Schedule a Demo to see how technology supports sophisticated restructuring operations.
Sources
• EY (2025). Private Equity Trends 2026: Leading Through Change - Average hold reached 8.5 years in 2024, median at 5.8 years
• EY (2025). Private Equity Pulse Q4 2025 Key Takeaways - Inventory of 12,552 PE-backed companies equivalent to 8.5-9 years of exits
• McKinsey (2026). Global Private Markets Report - Continuation vehicle contributions rose to 20% from 6% pre-2021
• PwC (2026). Private Equity Deals 2026 Outlook - GP-led secondaries reached $75 billion in 2024, representing 16% of sponsor exits
• Alter Domus (2025). 2025 Private Markets Year-End Review - Private credit uses continuation vehicles for extended hold periods and refinancings