The Structural Shift in Private Equity: How Continuation Vehicles Are Reshaping Exit Strategies and Investment Returns

The private equity landscape is undergoing a seismic shift. As traditional exit routes like IPOs and strategic sales falter under macroeconomic headwinds, continuation vehicles (CVs) have emerged as a transformative force, redefining how capital is allocated, liquidity is managed, and value is created over the long term. For investors seeking to navigate a maturing PE ecosystem, understanding this paradigm shift is no longer optional—it's imperative.

The Rise of Continuation Vehicles: A New Liquidity Paradigm

Continuation vehicles, once a niche tool, have become a cornerstone of modern private equity strategy. By enabling the transfer of assets from aging funds into new structures, CVs allow general partners (GPs) to retain control over high-conviction investments while offering limited partners (LPs) tailored liquidity solutions. In Q2 2025 alone, CV-related exits totaled $22 billion across 70 funds, a 44% year-over-year surge. This growth is not accidental; it reflects a structural response to a market where traditional exits are increasingly unviable.

Consider the case of Accel-KKR, which raised $1.9 billion for a second continuation vehicle focused on isolved, a human-resources software firm it has held since 2011. This “CV-squared” structure—rolling assets from one CV into another—demonstrates how GPs are extending the lifecycle of their best-performing investments. Such strategies are gaining traction as firms like Vista Equity Partners and Inflexion deploy record sums into CVs, with Vista's $5.6 billion fund for Cloud Software Group setting a new benchmark.

Strategic Capital Allocation: Beyond Short-Term Gains

The appeal of CVs lies in their ability to align long-term value creation with investor liquidity needs. Unlike forced exits, which often occur at suboptimal prices, CVs allow GPs to maintain ownership of high-quality assets for extended periods. This is particularly critical in an environment where private equity portfolios hold an average of 12,000 deals—equivalent to eight years' worth of inventory. By prolonging the holding period, GPs can refine operational improvements, weather market volatility, and capture compounding returns.

Performance data underscores this advantage. Hamilton Lane's 2021 analysis revealed that CVs outperformed their parent funds, with single-asset vehicles delivering returns exceeding top-quartile benchmarks. This is no surprise: CVs often feature reset carry structures, tiered incentives, and lower management fees, creating a win-win for GPs and LPs. For instance, tiered carried interest models—where GPs earn higher returns if the internal rate of return (IRR) of the CV surpasses a threshold—ensure alignment with LPs' long-term goals.

Redefining the Buyout Model: From Exit-Driven to Value-Driven

The traditional buyout model, predicated on rapid exits, is giving way to a more patient, value-driven approach. CVs exemplify this shift by prioritizing sustained growth over short-term liquidity. This is evident in the rise of “CV-squared” structures, where firms like Revelstoke Capital Partners extend ownership of assets like Fast Pace Health. Such strategies are not without risks—investors remain wary of fee renegotiations and complexity—but the benefits of preserving high-quality assets in a low-liquidity environment are undeniable.

Moreover, CVs are reshaping ownership dynamics. By offering LPs the choice to roll over stakes or cash out, GPs can tailor liquidity to individual investor needs. This flexibility is particularly valuable for institutional investors facing denominator effects (i.e., limited capacity to commit new capital) or those seeking to diversify exposure to the same strategy via a GP's new fund.

Why Investors Should Position Now

For investors, the key to capitalizing on this shift lies in proactive positioning. Here's how:

1. Engage with GPs Using CVs Strategically: Prioritize funds where GPs demonstrate a clear rationale for CVs—such as extending the lifecycle of high-conviction assets or optimizing capital structure. Firms like Inflexion, which sold four portfolio companies to a £2.3 billion CV, exemplify disciplined capital recycling.

2. Demand Transparency and Alignment: Scrutinize CV terms, particularly carry structures and valuation mechanisms. Firms that offer tiered incentives or transparent performance benchmarks (e.g., IRR thresholds) are more likely to deliver sustained value.

3. Diversify Across CV Generations: While first-generation CVs enjoy higher LP support, second-generation (“CV-squared”) vehicles can still offer compelling returns if the underlying assets remain robust. However, exercise caution with successive rollovers, as investor enthusiasm wanes after the first iteration.

4. Monitor Macroeconomic Catalysts: CV adoption is likely to accelerate as traditional exits remain constrained. With interest rates dampening buyer demand and IPO markets in flux, CVs will become an even more attractive tool for unlocking liquidity.

The Road Ahead: A Maturing PE Ecosystem

The rise of CVs signals a broader maturation of the private equity industry. As LPs demand greater flexibility and GPs seek to optimize value creation, the lines between primary and secondary markets are blurring. This evolution is not without challenges—conflicts of interest, regulatory scrutiny, and LP fatigue remain risks—but the structural advantages of CVs are too compelling to ignore.

For investors, the message is clear: adapt or be left behind. By embracing CVs as a strategic tool for capital allocation and long-term value creation, investors can position themselves at the forefront of a transformative shift in private equity. The future belongs to those who recognize that liquidity is no longer a binary choice between holding and selling—it's a spectrum, and CVs are the bridge.