Schroders Sees Continuation Funds Curbing Private Equity Deal Flow

Private equity managers are leaning more heavily on so-called continuation vehicles—funds that allow them to hold on to portfolio companies longer and return cash to investors—because traditional exits through sales or public listings remain scarce, Schroders Plc said in a new industry study. Schroders Capital found that the practice, once dominated by large buyout houses purchasing assets from smaller peers, is now spreading to mid- and lower-market sponsors after nearly three years of subdued deal activity. The asset manager warned that the growing use of these structures could make it harder for bigger sponsors to source attractive targets, potentially clogging the buy-sell chain that underpins the industry’s model. While continuation vehicles provide liquidity to limited partners during a protracted exit drought, Schroders urged fund managers to mark valuations conservatively to avoid overstating returns. The study concludes that, if current market conditions persist, the proliferation of such vehicles is likely to reshape fundraising dynamics and the pace of future deals across the $8 trillion global private-equity sector.