Private Equity's Plan B: Navigating The Exit Drought With Continuation Funds

In a typical bull market, private equity sponsors exit out of portfolio assets through IPOs, strategic sales and sponsor-to-sponsor buyouts. But the 2025 deal market has proven to be neither typical nor robust. Amid tariff uncertainty, higher-than-hoped for interest rates and volatile equity markets, traditional PE exits have slowed to a crawl in 2025.

Against this backdrop, continuation funds have emerged as a crucial alternative for sponsors looking to generate liquidity for their limited partners while preserving exposure to assets they believe have further room to grow. The recent $3 billion continuation vehicle involving New Mountain Capital and Real Chemistry is a striking example. It also serves as a reminder that the legal structuring of continuation funds must be airtight, particularly when market conditions put increased emphasis on conflicts and valuations.