Key Takeaways
- • Continuation funds let a PE sponsor move portfolio companies into a new vehicle run by the same GP, so the GP never truly exits and resets the hold period, carried interest and management fee terms.
- • According to a 2025 Global Secondary Market Review from Jefferies, GP-led secondary transactions exceeded $100 billion in 2025, with volume rising consistently since 2023.
- • Evercore's July 2026 Secondary Market Review reports GP-led secondaries grew from roughly $26 billion in 2019 and now dominate the secondary market, with continuation funds the largest GP-led category.
- • The GP sits on both sides of the transaction, creating a valuation conflict that the authors argue requires genuinely independent valuations rather than GP-affiliated fairness opinions.
- • Holland & Knight authors urge LPs to demand independent valuations, conflict disclosure, tag-along rights and independent LPAC members, and advise M&A counsel to review change-of-control clauses and fund-level tax treatment.
Summary
Continuation funds, also called continuation vehicles (CVs), have become a major structural feature of private equity, according to a Holland & Knight analysis published in the Law.com format. In a GP-led secondary, a sponsor transfers one or more portfolio companies from an existing fund into a newly formed vehicle managed by the same general partner. Original LPs typically choose among cashing out at an agreed valuation, rolling their interests into the new fund, or a combination of the two. The structure lets the GP hold a high-performing asset beyond the original fund's term without a forced sale into an unfavorable market or a discounted exit.
The article cites a 2025 Global Secondary Market Review from Jefferies, which puts GP-led secondary volume above $100 billion in 2025, and Evercore's July 2026 Secondary Market Review, which reports GP-led secondaries growing from roughly $26 billion in 2019 to dominance of the secondary market, with continuation funds now the single largest GP-led category. The authors argue this undermines the traditional buy, improve, exit model of three to seven years, since the GP never truly exits and often refreshes economics through new carried interest and management fee terms.
The authors highlight conflicts of interest as the central concern. The GP is effectively on both sides of the transaction, with an incentive to set a high valuation to flatter the legacy fund while also seeking a reasonable entry price for the new vehicle's investors. Unlike a negotiated third-party sale, there is no adverse counterparty scrutinizing price. The authors state that independent valuations require genuine independence and that fairness opinions from GP-affiliated advisers are insufficient. Regulatory focus remains on these conflicts: the SEC's Private Fund Advisers Rule from August 2023 included requirements for fairness opinions or independent valuations in adviser-led secondaries, and while the Fifth Circuit partially vacated the rule in June 2024 in National Association of Private Fund Managers v. SEC, the SEC's FY 2025 examination priorities still emphasize these conflicts.
For practitioners, the article sets out concrete steps. LP counsel should negotiate for independent valuations, meaningful disclosure of carry resets and fee structures, tag-along rights, liquidity protections and independent LPAC members. Due diligence is often asymmetric, as new LPs rely heavily on GP materials and track record, and they seldom receive robust representations, warranties, indemnification or escrow protection, since the acquisition occurs through fund subscription documents rather than a purchase agreement. GP counsel should document conflict management carefully and assess whether the transfer triggers change-of-control or consent provisions in portfolio company credit agreements, customer and supplier contracts, leases and IP licenses. The article also flags federal tax issues, including Section 721(a) rollover treatment, Section 708 continuation rules, Section 704(c) built-in gain tracking, the Section 1061 three-year holding period for carried interest, and UBTI, withholding and FIRPTA exposure for tax-exempt and foreign investors.
The article cites a 2025 Global Secondary Market Review from Jefferies, which puts GP-led secondary volume above $100 billion in 2025, and Evercore's July 2026 Secondary Market Review, which reports GP-led secondaries growing from roughly $26 billion in 2019 to dominance of the secondary market, with continuation funds now the single largest GP-led category. The authors argue this undermines the traditional buy, improve, exit model of three to seven years, since the GP never truly exits and often refreshes economics through new carried interest and management fee terms.
The authors highlight conflicts of interest as the central concern. The GP is effectively on both sides of the transaction, with an incentive to set a high valuation to flatter the legacy fund while also seeking a reasonable entry price for the new vehicle's investors. Unlike a negotiated third-party sale, there is no adverse counterparty scrutinizing price. The authors state that independent valuations require genuine independence and that fairness opinions from GP-affiliated advisers are insufficient. Regulatory focus remains on these conflicts: the SEC's Private Fund Advisers Rule from August 2023 included requirements for fairness opinions or independent valuations in adviser-led secondaries, and while the Fifth Circuit partially vacated the rule in June 2024 in National Association of Private Fund Managers v. SEC, the SEC's FY 2025 examination priorities still emphasize these conflicts.
For practitioners, the article sets out concrete steps. LP counsel should negotiate for independent valuations, meaningful disclosure of carry resets and fee structures, tag-along rights, liquidity protections and independent LPAC members. Due diligence is often asymmetric, as new LPs rely heavily on GP materials and track record, and they seldom receive robust representations, warranties, indemnification or escrow protection, since the acquisition occurs through fund subscription documents rather than a purchase agreement. GP counsel should document conflict management carefully and assess whether the transfer triggers change-of-control or consent provisions in portfolio company credit agreements, customer and supplier contracts, leases and IP licenses. The article also flags federal tax issues, including Section 721(a) rollover treatment, Section 708 continuation rules, Section 704(c) built-in gain tracking, the Section 1061 three-year holding period for carried interest, and UBTI, withholding and FIRPTA exposure for tax-exempt and foreign investors.
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