Reference · Deal types & structures
Continuation fund
A new vehicle a GP raises to buy one or more assets from its own older fund, letting the manager keep a winning position past the fund's natural life while giving original LPs the choice to sell or roll over.
Worked example
A worked example of how the GP's carry resets (illustrative figures):
- The old fund bought an asset for $40 million; it's now worth $200 million. Moving it into a continuation vehicle at that $200 million valuation crystallizes the GP's carried interest on the $160 million of gains earned inside the old fund — the GP gets paid on that gain now, at the transaction.
- The continuation vehicle then starts its own carry calculation from a fresh $200 million cost basis. If the asset later grows to $300 million, the GP earns carry on the new $100 million of gains created inside the continuation vehicle — a second bite, on top of the one already taken at rollover.
- For rolling LPs, this means their reset cost basis is $200 million, not $40 million — they don't owe carry twice on the same dollar of gain, but they also don't recapture any further upside on the value already crystallized.
- Because the GP earns fees and carry on both the old fund's crystallization and the new vehicle going forward, an independent fairness opinion and a real cash-out option for LPs who don't want to roll are now standard safeguards against this structural conflict.
Where this trips people up
The frequent misreading is that a continuation fund is a distressed manoeuvre. Often it is the opposite: managers move assets they believe are still compounding. The genuine issue is conflict, since the manager sits on both sides of the price. What separates a well-run vehicle from a self-dealing one is whether the valuation was tested competitively and whether existing investors had real information and real time to choose.
Frequently asked
Do I have to roll into a continuation fund?
No. The structure exists precisely to offer a choice: take cash at the transaction price, or roll your exposure into the new vehicle. The quality of the process is measured partly by how genuine that choice is.
Does the manager's carried interest reset?
Usually yes — a new vehicle means new terms, which is a large part of why these transactions attract scrutiny. How much of the manager's existing carry and capital rolls forward is the detail that shows whether alignment survived the reset.
See the full glossary entry, or browseevery term.