With Nowhere to Sell, Firms Turn to Self-Sales
$41 Billion Recovered... Record High
Accounts for 19% of All Industry Sales
Private equity (PE) firms have set a new record for capital raised through "continuation funds," a structure in which they sell assets to themselves. With traditional exit routes such as initial public offerings (IPOs) and mergers and acquisitions (M&A) stalled due to market downturns, continuation funds are emerging as a de facto alternative exit strategy.
According to a report by investment bank Jefferies, PE firms that primarily use buyout strategies recovered a total of $41 billion (approximately 56 trillion won) in assets through continuation funds in the first half of this year alone. This figure represents an all-time high, accounting for 19% of all industry sales, and marks an increase of more than 60% compared to the same period last year.
A continuation fund is an investment method in which the same PE firm sells assets from an existing fund to a newly established fund under its own management. In this process, existing investors can either cash out or roll over their stakes into the new fund.
When a PE fund reaches the end of its life, the firm must return principal and profits to its investors. However, with the IPO market subdued and M&A activity weak, external sales have become difficult, prompting firms to turn to continuation structures as a new means of capital recovery by transferring existing assets to internal funds. In fact, several global PE firms have established multi-billion-dollar continuation funds in the first half of this year to move major assets internally. For example, global investment firm Vista Equity Partners created a $5.6 billion continuation fund to transfer its existing stake in Cloud Software Group to a new fund.
Todd Miller, Co-Head of Secondary Advisory at Jefferies, commented, "We are now entering the third or fourth year of weak distributions," adding, "The exit environment is extremely challenging, and the IPO market is essentially at a standstill."
Continuation funds are now becoming an established exit strategy across the PE industry. For PE firms, this allows them to realize performance fees without selling assets outright, while also maintaining long-term ownership of key portfolio companies. They can also benefit from the compounding effect of long-term holdings.
This trend is also evident in the statistics. According to Jefferies, the secondary market?where PE firms and institutional investors buy and sell existing asset stakes?surpassed $100 billion in the first half of this year, a nearly 50% surge compared to the same period last year. This demonstrates the boom in the secondary market alongside the rise of continuation funds.
Scott Beckelman, Co-Head of Secondaries at Jefferies, predicted, "Going forward, most PE firms will include one or two continuation deals as part of the core strategy for each fund," adding, "It is highly likely to become a regular and institutionalized method of exit."
However, concerns have also been raised about the structure of selling assets internally, akin to "recycling" within the firm. Critics argue that capital recycling through continuation funds could be abused as a way to defer true exits and inflate returns, rather than representing genuine investment realization.
Egyptian billionaire investor Nassef Sawiris strongly criticized the practice in an interview with the Financial Times, calling continuation funds "the biggest scam ever." He stated, "The logic of creating new leverage and moving assets to a new fund simply because you can't sell them is just a self-serving excuse that obscures the real issue."
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