Continuation funds (CFs) are a recent financial innovation in which PE managers raise new funds to purchase assets from their existing funds. CFs have surged in popularity, accounting for 9% of PE exits in 2024 and raising twice as much as US IPOs. We show that CFs emerge when LPs are more heterogeneous and fund managers have earned carried interest in legacy funds. Assets transferred to CFs are better performing and larger than other assets in legacy funds. LPs overwhelmingly choose to exit rather than invest in CFs, the decision that appears to be driven by time-varying LP liquidity demands.
Rustam Abuzov, University of Virginia, Darden School of Business
Will Gornall, University of British Columbia, Sauder School of Business
Sophie Shive, University of Notre Dame, Mendoza College of Business
Ilya Strebulaev, Stanford University, Graduate School of Business and NBER
Michael Weisbach, Ohio State University, Fisher College of Business and NBER
