2026 kicked off with yet another blockbuster private equity deal. This time, it was Michigan-based financial software provider OneStream, which announced earlier this month that it agreed to be acquired by private equity firm Hg for $6.4 billion.
That may sound like an eye-popping figure, but it pales in comparison to an even bigger deal for video game maker Electronic Arts, which in September said it was going to be acquired for a whopping $55 billion by three buyers, including a California private equity firm. According to The Wall Street Journal, it marked the largest leveraged buyout in history.
Evidently, for private equity, acquiring businesses is easy. Selling them, however, is another story.
After a yearslong shopping spree, private equity firms have now found themselves sitting on their acquisitions a bit longer as they wait for the right selling price. According to Bain & Company research cited by The New York Times, private equity firms held as many as 31,000 unsold companies at the end of 2025, up from 29,000 in the prior year. And while the buying continues, the selling appears to be stalling, with the median portfolio company holding period stretching to almost six years in 2025, according to research firm Private Equity Info. That marked the longest observed holding period since the company began tracking the metric 25 years ago.
With more holdings on hand, some private equity firms have been taking creative steps to get promised returns back to limited partners in the interim. Continuation vehicles have exploded in recent years as one way to do just that. These structures, also known as continuation funds, essentially allow a private equity firm to sell portfolio companies from one investment fund to a newly established one managed by the same firm. They’re typically enacted toward the end of the original fund’s lifecycle, which is often a 10-year timeframe. LPs are given an opportunity to reinvest in the new fund or cash out, and so far, many are choosing the latter.
Whether LPs like it or not, the practice has continued all the same, with the total dollar value of continuation funds expected to have hit $100 billion by the end of 2025. That compares to $35 billion in 2019, according to New York Times’ analysis of data from investment bank Evercore. And though such moves have gained considerable traction, they pose a range of potential governance concerns for both private equity firms and management at portfolio companies they own. Some critics have derided continuation funds as enabling “circular” or self-serving deals, with PE funds sitting on both the buy side and sell side of a transaction.
“Private equity firms made a lot of investments from 2018 to 2021,” explains Steven Kaplan, professor at the University of Chicago School of Business. “Those investments are now at the point where they need to sell them back because LP investors want their money back.”
Whether private equity firms will continue to use continuation vehicles in 2026 remains to be seen. Their future also hinges on a case brought by a foreign investor in the Delaware Court of Chancery, where plaintiffs claim a private equity firm tried to push a sale to a continuation fund. Private equity firms and the CFOs of the portfolio companies they own will be closely watching the outcome of the case in the months ahead.
A changing mindset
Though continuation funds have grown popular recently, they’re not exactly a new phenomenon. What has changed, observers say, are the reasons private equity firms are implementing them. In the past, private equity firms may have set up such funds for assets that may have been “hard to divest,” says Kevin Desai, U.S. and Mexico Deals Leader with PwC.
“That was the original intent, but now I think it’s shifted in a really healthy way,” he says, explaining that some firms are setting up continuation vehicles for otherwise well-performing assets. The hope, in either scenario, is to eventually get a better selling price. “The business is good, but the market doesn’t understand the journey the business is on,” Desai says.
In other words, if a portfolio company has high potential, a private equity firm may do itself a “disservice” to sell it too soon, as Desai puts it.
Still, that doesn’t mean investors are always on board with such maneuvers.
“Usually, a private equity fund will have five to six companies,” says Yaron Nili, professor at Duke University School of Law. But with a continuation vehicle, “you’re basically asking an investor to switch from a portfolio investment into a cherry-picked investment,” he says. “Some investors just don’t have the ability to identify whether this is a good thing or a bad thing.”
In a 2024 paper, Nili and coauthor Tel Aviv University law professor Kobi Kastiel wrote about the “web of conflicts” surrounding the practice.
“… in continuation funds, sponsors place themselves in a position where they are committed to two groups of investors whose interests are in direct conflict — the exiting investors interested in selling the fund’s assets at the highest possible price and the incoming investors in the continuation fund interested in paying the lowest possible price for the assets,” the professors wrote in the paper. “The tendency of the vast majority of existing investors (80-90%) to opt for cashing out instead of rolling over their investments intensifies the severity of this conflict.”
Such concerns about continuation funds are sure to be scrutinized in a recent legal case brought by Abu Dhabi’s sovereign wealth fund and other investors. In a suit filed in the Delaware Court of Chancery in December, plaintiffs alleged that private equity firm Energy & Minerals Group attempted to force a sale to a continuation fund.
The plaintiffs maintain that the private equity firm engaged in “underhanded tactics and misleading disclosures.”
If the court rules against the plaintiffs, that may encourage even more continuation funds to sprout. Conversely, a ruling in their favor could “kill a lot of potential deals,” Nili says.
Looking ahead
In the interim, observers see indicators that continuation vehicles aren’t going away anytime soon. “There’s a lot of money that’s gone to secondary funds that price continuation vehicles, so there’s no doubt these will continue,” says Kaplan with the Booth School. Still, LPs generally “don’t like” the practice, which means that PE firms may need to “be careful not to do too many of these,” he says.
Kaplan ultimately describes continuation vehicles as just one “quiver in the arsenal of exits” for PE firms.
Rachel Barton, senior managing director with Accenture, notes that continuation vehicles “can be particularly useful if M&A activity is low, and because the asset is being transferred from one fund to another, the downside risk can be lower.”
She adds: “However, it’s important to consider continuation funds in the mix of traditional exits, IPOs and more.” In the months ahead, Barton says such funds have the “potential to increase and are becoming a more mainstream part of the vehicles private equity offers.”
For what it’s worth, there’s not much in the way of regulation around continuation vehicles, either. The Securities and Exchange Commission, under the Biden administration, in August 2023, issued a new set of rules intended to curb sponsors’ conflicts of interest. But, with the change in presidential administrations, “everything has been tabled,” Nili notes.
Private equity, in general, is “regulated lightly,” he says.
PortCo repercussions
Legal matters aside, being rolled up into a new continuation fund may have other impacts on portfolio companies themselves, for better or worse. Desai with PwC argues that such moves signify that PE sponsors “want to continue to invest.”
“Management teams, in general, should be excited by it because it means people are excited by the prospects of your business,” he says.
Such moves may even lead to an infusion of additional capital, depending on a private equity firm’s intentions. It could also mean more scrutiny for portfolio companies and their management teams. “Generally speaking, you’re likely going to have even more involvement by your private equity owners” when your company is folded into a continuation fund, Nili says.
