Are continuation vehicles simply prolonging the suffering of a “Zombie Fund”?

The name zombie fund refers to funds that have run beyond their useful life, have already generated the vast majority of returns to investors, but the residual assets can’t be sold. Picture the scene. You're locked into an illiquid fund approaching the end of its contractual life. Time is running out, the assets haven’t been sold and distributions have slowed to a crawl. From the outside it might look like a zombie fund. But the reality is more nuanced. Some funds are genuinely dead on their feet, holding assets that should be sold and capital returned. However, others simply need more time. The investments remain attractive, but market conditions or asset-specific circumstances mean a sale would leave money on the table.

For assets that still have more to give, continuation vehicles are the industry’s remedy. A new investment fund created by a fund manager to buy one or more assets from an existing fund. They force investors into a stark choice. Sell or stay invested. But like any remedy, there may be side effects.

From the undead to the mainstream

The lifecycles of funds and their underlying assets aren’t always aligned. Rather than forcing exits at unattractive prices, the industry has adapted. Continuation vehicles are a response to this persistent disconnect in private markets.

General Partner (GP-led) secondary transactions, where fund managers restructure the ownership of assets, increasingly feature continuation vehicles. They enable managers to reanimate assets and provide investors with a choice.

1. Liquidity today - exit the assets; or
2. Retain exposure - but likely on different terms.

The secondaries market has reached record scale (total volume c.$230bn in 2025), with GP-led transactions accounting for roughly half of that total. Within this, continuation vehicles represent around 90% of GP-led transactions. They've moved beyond distressed ‘end-of-the world’ situations into a mainstream portfolio management tool. This shift is subtle but important.

Many legacy assets still have a pulse

Many continuation vehicles involve “trophy” assets that managers actively want to hold longer.

And market behaviour reflects this shift. Pricing for high-quality deals has strengthened, often landing close to net asset value (NAV). Single-asset continuation vehicles, typically centred on a fund’s best performer, now account for more than half of all continuation vehicle activity. At the same time, secondary capital has deepened, with dedicated secondaries investors now increasingly competing for access.

So… why the scepticism of continuation funds?

1. Not all continuation vehicles are created equal. The key distinction isn’t the structure but why they're being used. Is it to capture more value from strong assets, or to postpone an inevitable unsavoury exit?
2. Conflicts of interest are also inherent. The fund manager operates on both sides of transactions, often negotiating directly with lead secondary investors. This isn’t necessarily a problem, but it elevates the importance of governance, independent pricing, transparency and meaningful investor engagement.
3. Whilst investors have a choice, in practice, decision windows are short, typically 20 days.
4. Inherent bias plays a role too. There is a risk that managers present assets in the best possible light, emphasising upside while downplaying challenges. It is here where careful analysis of both the asset and the rationale for the transaction becomes critical. The ability to quickly diligence the asset, challenge assumptions, and assess on a case-by-case basis can materially inform outcomes. Otherwise, you risk a situation where the doctor is also the undertaker and gets paid either way, irrespective of investment performance.

A double-edged structure for investors

For investors the risks are clear. Conflicts are unavoidable, governance is complex, and adverse selection is always a concern. Are you truly being offered a compelling opportunity?

But the advantages are equally real. Continuation vehicles offer optionality, giving investors access to known assets with established performance records and a more transparent value-creation plan than a blind pool. For high-conviction investors, they’re a chance to back proven winners.

When they work well, they allow investors to capture value that might otherwise be forgone through a premature exit. When they don’t, like the Walking Dead, they become a slow shuffle down a long road.

So, should I be running for the hills?

Not necessarily but vigilance is key.

For investors, due diligence is everything. You need to be confident that what you are looking at is a high-conviction asset rather than a reluctant hold, that pricing is robust and independently validated and that governance genuinely protects investor interests.

Continuation vehicles are like Hollywood sequels. Some follow a strong first film and earn their next chapter, others just keep the franchise going. Think 28 Weeks Later, not House of the Dead 2. It’s pivotal to understand which you’re getting.