The Continuation Fund Con: How Private Equity Hides Losses in Plain Sight

The Continuation Fund Con

Part 6 of 12 · The 5 Trillion Dollar Shell Game

The Continuation Fund Con

When private equity funds can’t sell their assets at acceptable prices, they transfer them to new vehicles — at valuations they set themselves. Here’s how it works.

Continuation funds are one of the most sophisticated — and least understood — tools in the institutional real estate playbook. When a private equity fund reaches the end of its term and the manager does not want to sell assets at current market prices, the assets are transferred into a new “continuation vehicle” at a valuation determined by the manager. Existing investors get a binary choice: accept the manager’s price and exit, or roll into the new fund and wait. The manager collects new fees either way.

How Continuation Funds Work

A traditional private equity real estate fund has a defined life — typically 7–10 years. At the end of that term, the manager is supposed to sell the assets, return capital to investors, and close the fund. This is the moment of truth: the sale price reveals what the assets were actually worth, not what the manager’s internal model said they were worth.

Continuation funds allow managers to avoid this moment of truth. Instead of selling, the manager transfers selected assets into a new vehicle — a continuation fund — and invites both existing investors and new capital to participate. The transfer price is set by the manager, often with the assistance of a third-party valuation firm that the manager selects and pays. Academic research published in the Journal of Financial Intermediation (2025) has raised serious questions about whether these valuations reflect fair market value, noting the inherent conflict of interest in a manager valuing their own assets for a transaction that benefits them financially.

“Continuation funds break from the traditional private equity model by allowing sponsors to hold on to assets beyond the typical fund term and, instead of selling, transfer them to a new vehicle at a sponsor-determined valuation.”— ECGI Working Paper, “The Rise of Private Equity Continuation Funds”
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Who Benefits
The fund manager benefits in every scenario: new management fees on the continuation fund, carried interest reset potential, and avoidance of forced sales that would reveal true asset values. New investors get access to “premium” assets at manager-set prices.
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The Conflict of Interest
The manager sets the transfer price, selects the valuation firm, and controls the information available to investors. Existing investors who want to exit must accept the manager’s price. Those who stay are betting the manager’s valuation is accurate.
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The Boom in Continuation Vehicles
The CAIA Association described the continuation vehicle boom in February 2026 as a “structural shift or liquidity patch” — noting that these vehicles are increasingly extending asset holding periods far beyond original fund mandates, blurring economic boundaries.

The Retail Investor’s Position

If you invested in a non-traded REIT or a private real estate fund, you may have already encountered a continuation fund scenario without realizing it. When your fund sends you a letter offering to “roll over” your investment into a new vehicle, or offering to buy out your position at a specific price, you are looking at a continuation fund transaction. The key question to ask is: what is the basis for the valuation, and who determined it?

🎯 Key Takeaways — Part 6

  • Continuation funds allow private equity managers to avoid forced sales by transferring assets to new vehicles at self-determined valuations.
  • The manager benefits financially in every scenario — new fees, reset carry, and avoidance of loss recognition.
  • Academic research has raised serious questions about the fairness of continuation fund valuations.
  • The boom in continuation vehicles is accelerating, with CAIA noting they are increasingly extending holding periods far beyond original mandates.
  • If you receive a “rollover” offer from a private real estate fund, ask hard questions about the valuation methodology.
Sources: A&O Shearman “Continuation Funds for Real Estate Fund Managers” (May 2023); ECGI Working Paper “The Rise of Private Equity Continuation Funds”; CAIA “The Continuation Vehicle Boom” (Feb 2026); Journal of Financial Intermediation (2025).
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