Nils Rode

New analysis from Schroders Capital forecasts that the global continuation investment market – also known as GP-led secondaries – is set to more than quadruple in size over the next decade, transforming both sourcing and exit dynamics, as well as redefining value creation in private equity.

The private equity team’s model forecasts as a base case that, by 2034, annual exit values from continuation investments will reach over $300 billion – up 329% from 2024 levels – boosted by growing investor demand, structural supply-side factors and a shift in strategy across the buyout landscape.

Nils Rode, Chief Investment Officer, Schroders Capital said:  “Even our conservative estimates show significant growth for the continuation investment market. Under more optimistic assumptions, this growth could be even higher.

“While some commentators suggest that the growth of the continuation fund market is merely cyclical, driven by a temporary drought in traditional exit routes against a challenging macroeconomic and market backdrop, our analysis suggests that 80% of the 2024 transaction volume for continuation investments is driven by structural growth, not cyclical effects.

“Continuation investments allow the successful transformation of portfolio companies to continue under the same fund manager when no change of control is needed. These transactions are made possible by lead underwriters, such as Schroders Capital, who team up with GPs and often inject new capital to help underlying portfolio companies accelerate growth and scale.”

Drivers of growth

Schroders Capital believes there are five key structural factors that are driving the growth of this segment, reflecting a combination of long-term market evolution and short-term dynamics:

• Established route for company transformation: Continued private equity ownership beyond initial holding periods enables further value creation without the disruption of changing owners.
• Not all assets require new owners: Based on Schroders Capital analysis of c.2,600 buyout investments, a significant share (up to 31%) of portfolio companies can be further improved under the same fund manager, making continuation investments a natural progression.
• Cost-effectiveness: Continuation funds have lower fees and more efficient structures than traditional buyouts (about half the fees), with investor lifetime fee savings for the 2024 vintage years estimated at close to $4 billion.
• Predictable returns and faster liquidity: These investments tend to generate more stable outcomes and a 25% faster time to liquidity, benefiting investors seeking more predictable returns and cash flow.
• Current slow exit environment as additional tailwind: Macro headwinds and reduced traditional exit routes have increased the availability and appeal of continuation investments. However, structural factors remain the primary growth driver. Importantly, exit markets are expected to recover in the coming years.

Disrupting the buyout model

Nils Rode, continued: “The most profound disruption is not in the concept of holding companies longer under private equity ownership, that has been common for years. It instead lies in who retains ownership.

“The term ‘GP-led secondaries’ is a misnomer that leads to significant misunderstandings as the fund managers (GPs) typically retain (and often even enhance) their interest in a portfolio company and do not realise performance fees. We believe that ‘continuation investments’ is a better term to describe this new kind of investment.”

Rather than selling to another fund manager, more portfolio companies now remain with the same manager through the use of continuation vehicles, typically including new capital, enabling the continued execution of successful transformation strategies beyond traditional holding periods.

As a result, continuation investments allow lower mid-market managers to maintain control for longer, providing greater continuity and fresh capital to portfolio companies, while also offering more attractive terms to lead underwriters and other new investors compared to traditional sales from one fund manager to the next.

This development is disrupting deal flow, particularly for mid and large buyouts, where secondary buyouts (one fund manager selling to the next) have historically comprised about half of transactions.

As continuation investments become a more attractive and cost-effective option, large private equity firms and secondaries managers are increasingly launching dedicated continuation strategies. This trend is already driving innovation, such as hybrid arrangements where a fund manager retains ownership for the continuation of the transformation of a portfolio company, while an additional fund manager joins and shares partial ownership to bring in specific skills for the next phase of company transformation.

Nils Rode, continued: “We estimate that, under our base case assumptions, continuation investments will displace 8% of total deal flow for mid and large buyouts over the next 10 years, compared to where it would be otherwise. Under more optimistic assumptions for the growth of continuation investments, this disruption could be even bigger.”

Small/mid continuation investments are structurally more attractive

While continuation investments are proliferating across the private equity spectrum, Schroders Capital’s analysis highlights the lower mid-market – defined as companies with enterprise values below $1 billion – presents a particularly compelling proposition, offering a broader and more diverse set of opportunities than the large buyout space.

Over the past two years, more than two-thirds of continuation fund opportunities evaluated by Schroders Capital involved companies valued under $750 million.

This segment is especially attractive due to more favourable transaction economics, including lower entry valuation multiples and greater potential for transformational growth. Smaller businesses tend to have more avenues for operational improvement, geographic expansion and product innovation, enhancing the scope for value creation.

The lower mid-market also benefits from a wider range of exit routes – notably including sales to other private equity fund managers – greater resilience during periods of market stress, and less dependence on volatile public markets for liquidity.

Furthermore, these companies are often more domestically focused and service-oriented, providing portfolio diversification and reducing exposure to global market shocks.

Nils Rode added: “Continuation funds are redefining the private equity landscape, by eating into the deal flow of mid and large buyouts and by unlocking even greater potential in the lower mid-market.

“As the market evolves, we expect continuation investments to offer investors significant opportunities for value creation, resilience, and diversification for many years to come.”

Read the full analysis.

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Nils Rode

Despite rising uncertainty due to major US policy changes, our outlook for private equity remains positive. We are optimistic about small and mid-sized buyouts, early-stage venture capital, and continuation opportunities.

Historically, small and mid-sized buyouts have demonstrated resilience during past crises and typically have less exposure to global trade. Early-stage venture capital is often less correlated with listed markets, and continuation opportunities can perform well when exit markets are subdued. Additionally, current valuations are attractive, following a protracted slowdown in fundraising and deal activity. We recommend that investors remain highly selective and emphasise diversification across strategies and portfolio companies to navigate uncertainties effectively.

US policy changes and uncertainties surrounding AI-driven capital expenditures, as showcased by DeepSeek, have intensified volatility in listed markets. These developments pose significant risks to economic growth, inflation, and interest rates. With this backdrop, investors should focus on private equity strategies that exhibit characteristics such as favourable entry valuations, domestic market exposure and robust downside protection, while offering reduced correlation with public markets and the potential for additional risk premiums. 

US policy changes create uncertainty

Following a three-year slowdown across private markets in terms of fundraising, new deals and exits, private market valuations and yields are generally attractive in both absolute and relative terms. However, risks have increased sharply since the beginning of the year due to the US government’s policy changes and the uncertainties around their implementation and impact. This is most notable in relation to trade tariffs, immigration, ESG considerations, and a more isolationist stance regarding geopolitics and defence.

This has significantly increased volatility in listed markets and heightens near-term risks to economic growth, inflation and interest rates. The global repercussions of US policy changes are also likely to induce industry- and region-specific challenges, further contributing to continued increased volatility.

Question marks around AI related capital expenditures

Meanwhile, the efficiency gains potentially showcased by DeepSeek for generative artificial intelligence (AI) models introduce new uncertainties concerning capital expenditure (capex) and valuations levels of companies benefiting from the AI narrative. 

With careful construction, private equity can enhance portfolio resilience

Private equity generally offers protection against public market volatility and can thrive even amid uncertainty, as we have shown previously. Nevertheless, we find that in the current market environment, some strategies exhibit notably better risk/return profiles than others.

Consequently, we urge investors to be discerning in selecting strategies and investments. Additionally, diversification across strategies is important. We see the most attractive investment opportunities in the current market as being characterised by:

• Balanced capital supply and demand dynamics, leading to favourable entry valuations and yields
• Domestic companies and assets offering some insulation from geopolitical risks and trade conflicts
• Opportunities for additional risk premiums arising from complexity, innovation, transformation, or market inefficiencies
• Robust downside protection through limited leverage or asset backing
• Reduced correlation with listed markets, owing to distinct risk exposures

Small and mid-sized buyouts look especially attractive for multiple reasons

As we have shown previously, over the past 25 years, private equity has thrived during periods of market disruption, achieving twice the outperformance in times of high volatility compared to more stable periods. Importantly, in four of the five major market disruptions within this timeframe, small and mid-sized buyouts were key contributors to private equity’s resilience (see chart above). In 2025, we again expect small and mid-sized buyouts to offer particularly attractive opportunities for enhancing portfolio resilience.

We prefer small to mid-sized buyouts over larger transactions, as they benefit from a favourable capital supply-demand dynamic and face lower competition for a broader range of deals. Additionally, this market segment offers compelling entry points for investment (see chart below), with less reliance on debt financing and significant potential for value creation. Furthermore, small to mid-sized buyouts can grow to become acquisition targets for larger buyout funds, providing an additional exit path.

In the current market context, it is especially beneficial for smaller buyouts that they typically focus on domestic companies, making them less susceptible to trade and geopolitical tensions.

Stable and attractive multiples for small-mid buyout investments

Less competitive small-mid buyout market offers strong potential for outperformance and value creation.

Continuation funds poised to continue strong growth trend

The secondaries market saw a record transaction volume of $160 billion in 2024. Continuation funds remained a key growth area, providing valuable liquidity options to investors and accounting for a record $71 billion in transaction value (see chart below).

Continuation funds are a compelling exit route for portfolio companies, especially small and mid-market firms with significant transformational growth potential. In the short term, this appeal is amplified by current uncertainties that are slowing the recovery of exit markets.

In the long term, considering the ongoing growth of private equity and the trend of companies staying private longer, we project that the continuation fund market segment could reach an annual transaction value of $250 billion within the next decade.

Despite exuberance around AI, innovation dynamics remain attractive

Efficiency gains demonstrated by DeepSeek have sparked concerns about the significant capital expenditure related to AI, contributing to valuation pressures for certain AI companies, particularly in the US. We view these risks as relatively contained for private companies, as venture and growth capital investments typically favour capex-light investments focused on the application layer of the AI stack. Companies leveraging AI models can benefit significantly from the associated efficiency gains.

Moreover, while AI investments reached 15% of global venture investment in 2024, innovation and disruption extend beyond AI, encompassing sectors such as biotech, fintech, climate tech, and deep tech. Accelerating innovation dynamics across various sectors are supported by increased political focus on venture capital as a strategic tool to bolster national competitiveness.

We see significant potential in the recovering biotech sector, which has faced years of risk aversion, and generally find early-stage venture more attractively priced and isolated from current uncertainties than late-stage venture and growth capital.

By Nils Rode, CIO.

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