Private equity backers are increasingly opting to cash out rather than roll over stakes into continuation vehicles, as limited partners grow wary of muted returns and riskier deal structures in a tightening liquidity environment.

Between 85% and 92% of LPs have chosen to exit their stakes this year when offered rollover options in continuation fund transactions, up from 75–80% last year, according to data from Houlihan Lokey cited by the Financial Times. The trend marks a significant shift in sentiment toward a structure that had previously surged in popularity as GPs sought to extend their hold on high-performing assets.

Continuation vehicles allow private equity managers to retain ownership of portfolio companies beyond the traditional 10-year fund lifespan. These transactions typically involve a blend of capital from secondaries funds, GP commitments, and rollover investments from original fund backers. In 2024, they accounted for $62bn in deal volume, a nearly 50% increase year-on-year, according to Campbell Lutyens.

But the model is now facing headwinds. High-profile breakdowns, such as Clearlake’s Wheel Pros, which collapsed into bankruptcy despite generating nearly $1bn in prior profits, have rattled investor confidence. Equity investors in the continuation fund were left with significant losses.

LPs are “welcoming distributions from [continuation vehicles] with open arms,” said Matt Swain, global co-head of equity capital solutions at Houlihan Lokey. They’ve “experienced a dearth of liquidity in recent years.”

In addition to liquidity pressures, LPs are cautious of “lemons” being passed off as long-term value plays. Mustafa Siddiqui, founder of secondaries firm SQ Capital, noted that the challenge for investors is discerning “which of the latter are dressed up as the former.”

Despite the growing scepticism, continuation vehicles continue to feature in private equity exit activity. Jefferies estimates that up to 20% of all PE exits in H1 2025 involved such structures. GPs are still attracted by the ability to retain control of key assets, but LPs are now demanding clearer exit paths, better alignment, and improved transparency.

The shift in investor sentiment is likely to reshape the continuation fund market, favouring diversified multi-asset structures and more disciplined underwriting as the sector matures.

If you think we missed any important news, please do not hesitate to contact us at news@pe-insights.com.

Can`t stop reading? Read more.