Private equity exits rethought as continuation vehicles boom

By early 2026, Apollo had strategically prioritized early-stage de-risking by aiming to return about 40% of an investment's capital within the first two years, a move designed to enhance liquidity and reduce exit risk amid volatile market conditions. This approach was part of a broader recognition of secular declines in U.S. public companies and shrinking pools of public equity buyers, prompting Apollo to proactively build capabilities to manage equity exits beyond traditional public markets. As David Samber explained, this was not a sudden shift but a deliberate evolution anticipating reduced liquidity and fewer buyers in the public equity space.

In response to the unpredictable nature of debt capital markets, especially highlighted by the prolonged financing drought following the Great Financial Crisis, Apollo developed specialized financing capabilities including a direct debt placement team. This innovation allowed the firm to circumvent reliance on volatile external debt markets and better navigate uncontrollable economic downturns and market disruptions. David Samber emphasized that building this direct debt placement capability was essential to maintaining financing agility and mitigating exit risks in challenging environments.

By early 2026, continuation vehicles had firmly established themselves as a vital liquidity mechanism in private equity, effectively supplanting the traditionally slower M&A exit routes. These vehicles, ranging from single-asset to multi-asset structures, not only expedite liquidity for investors but also allow general partners (GPs) to generate carry that must be reinvested as GP commitments, aligning interests without investor resistance. This shift has transformed continuation vehicles from niche instruments into standard components of the private equity toolkit, fundamentally reshaping how firms approach asset extension and exit.

Continuation vehicles offer a strategic advantage by enabling GPs to reset management fees on extended assets, essentially mimicking the benefits of raising fresh capital. This fee reset mechanism allows both GPs and investors to reap ongoing financial rewards through renewed carry and management fees, reinforcing the vehicles’ appeal as a dual liquidity and fee-generation tool. Concurrently, the evolving landscape of fee and expense allocation—particularly in co-investment contexts—continues to develop alongside the proliferation of continuation vehicles, signaling an ongoing recalibration of cost structures within these innovative investment frameworks.

By mid-2026, the SEC had launched a comprehensive investigation into private equity continuation vehicles, spotlighting critical regulatory risks tied to valuation practices, conflicts of interest, and disclosure adequacy. Spearheaded by SEC Chairman Paul Atkins and Enforcement Director David Woodcock, the probe reflects heightened compliance pressures amid allegations of fraud and transparency concerns, underscoring the agency’s strategic focus on liquidity, fees, and fair valuation within these complex structures.

The explosive growth of continuation vehicles—manager-led secondary transactions soaring from $70 billion in 2024 to $106 billion in 2025 according to Evercore—has inevitably drawn intensified regulatory scrutiny. This surge has prompted the SEC to deploy a cross-division working group to address systemic risks in private markets, with experts like Nick Tsafos emphasizing that such scale demands rigorous oversight to root out potential bad actors and ensure fair pricing for both selling and incoming investors.

Continuation vehicles inherently pose thorny conflicts of interest because the same investment advisor often represents both the selling fund and the new vehicle acquiring the assets, creating a delicate balancing act in asset valuation and pricing. As Nick Tsafos notes, advisors walk a 'tightrope' ensuring selling investors receive appropriate value while incoming investors pay a fair price, a challenge compounded by illiquid securities whose valuations directly influence performance fees and carried interest, drawing sharp SEC attention to valuation methodologies and disclosure practices.

Disclosure challenges further complicate regulatory compliance, as pre-commitment transparency about continuation vehicles is inherently limited due to uncertainties over which assets will transfer and the terms involved. This opacity necessitates robust conflict management frameworks and active Limited Partner Advisory Committee (LPAC) involvement, while advisors and investors alike must conduct independent, rigorous due diligence—especially given evolving investment theses influenced by technological shifts such as AI—to navigate the complex risk landscape effectively.

By early 2026, Indian private equity firms faced a stark 47% year-on-year decline in IPO exits, totaling just $801 million across 12 deals in H1 2026, prompting a strategic pivot toward secondary sales and sponsor-to-sponsor buyouts. This shift is exemplified by KKR’s $1.3 billion acquisition of Medicover’s India hospital operations, which was initially slated for an IPO but ultimately executed as a private transaction, highlighting the preference for quicker liquidity and reduced exposure to market volatility inherent in public listings.

The move toward secondary market exits is driven by mounting pressure on funds raised between 2016 and 2021 to enhance their distributed-to-paid-in capital (DPI) ratios, compelling general partners to seek faster, more certain liquidity options. As Prakash Bulusu, joint CEO at IIFL Capital Services, notes, secondary transactions offer immediate execution certainty compared to IPOs, which are subject to unpredictable market timing, regulatory hurdles, and investor appetite, making secondary sales, continuation vehicles, and sponsor-to-sponsor buyouts increasingly attractive.

Despite the appeal of secondary deals, challenges persist, including valuation gaps where sellers cling to past highs or optimistic growth projections while buyers remain cautious amid economic headwinds like slower earnings growth and currency volatility. However, 2026 regulatory reforms—such as eased FDI rules under Press Note 3, differentiated capital gains tax regimes introduced by the Finance Act, and raised buyback thresholds—have enhanced the tax efficiency of trade sales and secondary transfers, incentivizing private equity firms to explore these alternative exit routes more aggressively.

While IPOs have diminished as a primary exit route, they remain relevant for high-quality assets, especially those in the ₹500-2,000 crore range, where over 10 active mandates have adopted a dual-track approach combining IPO and secondary exit options to maximize flexibility. As Apurva Kanvinde of Juris Corp observes, IPOs will continue to play a role but are increasingly contingent on favorable market windows and investor appetite, signaling a nuanced landscape where private secondary markets gain prominence as indicators of where savvy capital is flowing ahead of public listings.

Advent International underscores the critical importance of embedding exit strategy considerations from the underwriting stage through the entire investment lifecycle to adeptly navigate today's complex exit landscape. John Maldonado emphasizes intentionality in planning, urging deal teams to anticipate not only how but to whom and why an asset will be sold, thereby building conviction around a disciplined exit process. This approach is vital given the current bifurcated market, where top-tier assets command premium pricing while others require nuanced negotiation, making a well-constructed exit strategy essential to securing favorable outcomes.

A hallmark of Advent’s strategic exit planning is proactive engagement with tier-one strategic buyers early in the investment evaluation phase. Maldonado highlights that deal teams routinely validate their investment theses by directly consulting four to five potential buyers, incorporating their verbatim feedback into investment committee deliberations. This real-time market intelligence not only sharpens exit pathways but also enhances deal confidence amid uncertain market dynamics.

While IPO windows are cautiously reopening, Advent International advises that public market exits demand meticulous and early preparation to attract quality investor interest. Maldonado notes that IPOs remain highly selective, with only the best-quality assets leading the way, necessitating intentional marketing strategies and long lead times to successfully navigate this channel. This selective reopening further underscores the need for private equity firms to diversify and rigorously plan their exit routes well in advance.

India-focused private equity funds are markedly scaling up capital commitments to back mid-market, founder- and family-owned companies, reflecting strong confidence in the country’s long-term demographic and consumption-driven growth story. Siguler Guff’s closing of its $500 million GEMGO II fund—more than doubling its prior India deployment—exemplifies this trend, targeting professionalization and governance improvements to position these businesses for both domestic expansion and export-led growth.

Alongside primary funds, continuation and co-investment vehicles have become vital instruments for enhancing investment flexibility and deepening engagement with portfolio companies in India’s mid-market segment. Siguler Guff’s simultaneous use of a co-investment vehicle with GEMGO II, deploying about $200 million into firms like Trimex Foods and Rajasthan Royals, illustrates how deal sizes around $50 million can be scaled up, enabling tailored capital solutions that support growth trajectories.

The emergence of continuation funds as a strategic tool is reshaping portfolio management and exit dynamics within India’s private equity landscape. Siguler Guff’s planned $350-400 million continuation fund to back four portfolio companies, alongside similar initiatives by homegrown firms such as ChrysCapital and Kedaara Capital, highlights a maturing market where investors balance extending high-performing investments with providing liquidity to limited partners amid rising demand for secondary transactions.