Slower private equity exits are prompting managers to hold on to portfolio companies for longer through continuation funds, as demand for alternative liquidity options grows, according to Schroders Capital.
The the global private markets investment division of Schroders plc said continuation vehicles are displacing some sponsor-to-sponsor buyouts, where one private equity manager sells a company to another. Since 2006, these transactions have accounted for an average of 38% of buyout deals by volume and 36% by value.
Rather than selling an asset, managers are transferring it into a continuation vehicle, allowing them to retain ownership while raising new money to support the company’s next stage of growth. Many high-quality businesses continue to grow beyond the traditional four- to five-year private equity holding period, according to Schroders Capital.
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For mid and large buyout strategies, sponsor-to-sponsor transactions have become the main source of deal activity, accounting for more than half of transaction volumes in recent years and between a quarter and a third of new investments in 2025. Based on expected growth in the continuation market, Schroders Capital estimates that close to 5% of mid- and large-buyout deal flow could be displaced over the next decade.
The firm said the shift is likely to affect larger buyout managers and secondary investors.
Schroders Capital also identified the lower mid-market as the most attractive area for continuation investments. Its analysis of deals assessed between 2022 and 2024 found that more than two-thirds of potential continuation fund opportunities involved companies with enterprise values below $750 million.
According to Schroders Capital, because they are more focused on domestic markets and services, are less exposed to global trade and geopolitical uncertainty than larger companies.
