The Exit That Isn't an Exit: Continuation Funds and the Changing Life Cycle of PE Portfolio Companies

Corporate and private equity attorneys Monica Kwok, Christopher Froelich and Kourosh Azin co-authored an article for the New York Law Journal examining how continuation funds are reshaping the traditional private equity life cycle. These transactions allow sponsors to transfer portfolio companies into newly formed vehicles and continue managing them beyond the original fund's term, giving sponsors greater flexibility while creating distinct valuation, governance and investor protection considerations.

As the authors highlight, continuation funds place general partners on both sides of a transaction and can produce information gaps for new investors. They recommend genuinely independent valuations, clear disclosure of carried interest and management fee structures, meaningful limited partner protections, and careful analysis of tax consequences and change-of-control provisions in material contracts. The article also emphasizes that mergers and acquisitions (M&A) practitioners must increasingly combine deal execution experience with fund formation, secondary transaction and limited partner rights capabilities.

READ: The Exit That Isn't an Exit: Continuation Funds and the Changing Life Cycle of PE Portfolio Companies (Subscription required)