Private Equity Firms Sell to Themselves at Record Pace as Exit Options Dry Up
Finn's Take· TL;DR- PE firms increasingly sell assets to themselves through "continuation vehicles" to bypass weak exit markets, with such deals jumping to 20% of all PE sales in 2025.
- The practice generates extra management and performance fees while returning cash to older fund investors, but raises serious conflicts-of-interest concerns from institutional investors and regulators.
- Record $107bn in continuation vehicle sales expected for 2025 as high interest rates and 31,000 unsold companies limit traditional exit options for PE managers.
The Self-Dealing Surge
Private equity firms are rewriting the playbook for exiting investments, with roughly a fifth of all private equity sales in 2025 involving groups raising money from new investors to acquire businesses from their older funds, up from 12 to 13 per cent the prior year . This dramatic shift represents a fundamental change in how the industry operates, as firms increasingly turn to themselves when traditional exit routes prove elusive.
These transactions, known as continuation vehicles, allow PE groups to sell assets already owned by a PE group to so-called continuation vehicles, which are newer funds also managed by the firm. The tactic allows PE firms to return cash to investors in older funds, but has also prompted concerns around potential conflicts of interest . This year is set "to break all records", predicting the final figures for the year to show $107bn in such sales, up from $70bn in 2024 .
The practice has become so widespread that the dollar value of continuation vehicles across the industry is expected to total $100 billion or more by the end of 2025, up from about $35 billion in 2019 . Major firms including Vista Equity Partners, New Mountain Capital and Inflexion also used multi-billion dollar continuation funds to sell down some of their larger investments .
Why Firms Are Selling to Themselves
The use of this tactic has surged in recent years as buyout firms have struggled to secure the valuations they want from either external buyers or public markets, choosing instead to hold on to investments . The private equity sector, managing over $7 trillion in investor capital, is contending with a record backlog of more than 31,000 unsold companies. High interest rates have made debt-financed acquisitions prohibitively expensive for potential buyers, forcing firms to seek alternative exit strategies .
Such transactions had become a "popular and effective win-win-win liquidity solution in a stressed exit environment" due to exit values "still recovering from 2024 lows" . The structure is particularly attractive because the deals generate extra management fees and potentially lucrative future performance fees from companies in ageing funds .
Real examples illustrate the scale of this trend. European private equity house PAI Partners sold part of its stake in ice cream group Froneri, which owns the popular Haagen-Dazs brand, to a continuation vehicle for the second time, in a deal valuing the company at £13bn . Meanwhile, Vista raised a record 56 billion dollars through a continuation fund, selling a substantial portion of its stake in the IT company Cloud Software Group to a new fund it manages .
Growing Investor Concerns
The surge in self-dealing has sparked fierce criticism from major institutional investors who view the practice with deep suspicion. "Continuation vehicles are indicative of rot in private equity," said Marcus Frampton, chief investment officer of the Alaska Permanent Fund Corporation, which manages $83 billion of the state's money . Some backers of funds, including pension funds, are concerned that in these transactions the same buyout firm in on both sides of the deal as the buyer and the seller .
The controversy deepened when Abu Dhabi's sovereign wealth fund filed a lawsuit in the Delaware Court of Chancery claiming that Energy & Minerals Group, a private equity firm, was seeking to "reap a massive benefit for themselves" at the expense of their investors by selling a company into a continuation vehicle . Academic experts share these concerns, with Yaron Nili, a professor of corporate law at Duke Law School noting that because so many deals involve private equity firms buying from each other or from themselves, "it will be hard to distinguish between value-generating activities and just collecting and recollecting fees" .
The Road Ahead
Despite industry claims that they are selling only their best-performing companies to continuation vehicles, which would yield big profits when the companies can eventually be sold to outside buyers , the track record remains mixed. Some continuation funds have delivered spectacular returns, while others have failed completely, making it difficult for investors to assess true performance.
This trend signals a broader transformation in private equity, where traditional market dynamics are being replaced by internal arrangements that prioritize fee generation over competitive pricing. Despite some deal activity pickup toward the end of the year, the fundamental challenges facing private equity exits remain largely unresolved, suggesting continued reliance on continuation vehicles as firms navigate the current market environment . As interest rates remain elevated and traditional buyers stay cautious, expect this controversial practice to become even more entrenched in the industry's playbook.