Selling portfolio companies at valuations necessary to deliver compelling investment returns has proven challenging for many US buyout firms during a continuing period of elevated interest rates and sluggish M&A activity.
US exit values via M&A more than halved between the top of the market in 2021 and 2024, when interest rates finally peaked, dropping from US$402 billion to US$180.2 billion. Figures from private markets investment platform Future Standard, meanwhile, show that the ratio between US exits and new investments has been in consistent decline since 2021.
This market dynamic has left buyout managers in a difficult situation, with falling exits limiting their ability to unlock portfolio company value and liquidity and to make distributions to their investors. Limited distributions, in turn, have had a knock-on effect for private equity fundraising, with LPs holding back from investing in new funds until GPs return more cash from existing portfolios.
GPs have responded in part by exploring alternative options to release liquidity from aging portfolios and expedite cash returns to investors. According to Bain & Company, almost a third of companies still sitting in buyout portfolios have already undergone some kind of liquidity event, securing an estimated US$410 billion of liquidity for investors through minority interest sales, dividend recaps, NAV loans and the secondaries market.
The secondaries market has proven an especially powerful liquidity option, with GP-led secondaries in particular giving managers the scope to control and curate liquidity events for portfolio companies without having to turn to unpredictable mainstream M&A markets.
Secondaries in the spotlight
The GP-led secondaries market has evolved and grown out of the LP secondaries ecosystem during the last ten to 15 years.
Unlike LP secondaries deals, where LPs sell their stakes in PE funds to secondaries firms, GP-led secondaries are initiated by the managers themselves. In GP-led deals, a manager will select an asset or group of assets in a fund portfolio and construct a deal that offers LPs the option to either roll over their existing stakes in the asset, or assets, or participate in an indirect sale transaction that affords immediate liquidity. Continuation vehicles (CV) have been the structure of choice for most GPs opting to pursue GP-led deals.
Initially used as a mechanism to clear out legacy and underperforming portfolio companies, GP-led deals have evolved over time and are now routinely deployed for trophy assets to which GPs want to retain exposure.
The GP-led market has grown steadily over the past decade. Evercore figures show that GP-led transactions have increased from 19 percent of overall secondaries transaction volume in 2014 to almost half of total volume in H1 2025. Not only do GP-led transactions represent an ever-larger share of the secondaries market, but such transactions have also become a compelling exit strategy. The investment bank Jefferies estimates that in the first half of 2025, CV deals alone accounted for almost one fifth (19 percent) of overall sponsor-backed exit volume.
The US has been the single biggest market for these deals. Evercore estimates that North America generated 61 percent of global GP-led secondaries volume in H1 2025.
CV deal highlights in the US in 2025 include Vista Equity Partners closing a record US$5.6 billion transaction involving portfolio company Cloud Software Group and New Mountain Capital progressing a US$3 billion multi-asset CV deal for healthcare marketing company Real Chemistry.
Achieving alignment
The growth in CV deal volume has benefited managers, who have been able to reset carry hurdles and fees when rolling assets into CVs, and LPs, who have been able to expedite cashflows and distributions from assets rolled into CV structures. Tellingly, as discussed below, most LPs elect to sell into CV transactions.
CV deals, however, are not without their challenges. These transactions have raised concerns for incumbent LPs (and regulators), who have cited a lack of clarity and transparency on how valuations for CV targets are reached as an issue in some deals.
LPs are also keeping a close eye on fee and carry reset terms and want to ensure that CV deals do not dilute alignment of interest between GPs and LPs. GPs typically face conflicts of interest, as they inevitably sit on both sides of such transactions. Even though valuations for most CV deals are established by independent, third-party advisers, the nature of the transactions can make CV deals difficult to negotiate. In particular, GPs must establish a clearing price for incumbent LPs that new investors find compelling.
Fully funding CV deals presents its own capital-raising challenges. Jefferies figures show that, on average, only 17 percent of incumbent LPs roll their stakes into CVs, demanding that GPs assemble clubs of secondaries co-investors to fund deals or find big secondaries players with deep pockets to cover the stakes of LPs that opt to take liquidity.
Adapting to challenges
Managers are adapting to these complexities, and as the CV space has grown, best practices and guidelines for investors have become established, helping to mitigate the risks of diluted alignment and mispricing assets.
Indeed, CVs now look set to remain an established part of private markets. Even as exit deal value recovers—US exit value for the first three quarters of 2025 totaled US$268.7 billion, already well above the totals for 2023 and 2024—GPs will continue to take advantage of the exit optionality that CVs provide alongside IPOs and M&A.
Asset manager Schroders anticipates that CVs will prove particularly disruptive for secondary buyout activity, where one PE firm sells a portfolio company to another PE firm in an M&A process, as CVs can potentially provide both selling GPs and rolling investors with better terms and fees.
CVs are also attractive to selling GPs who are able to retain control of their portfolio companies. Rather than selling on a company to another private equity firm, a sponsor can structure a CV to retain ownership of companies for longer, as well as bring in new capital to support future financing requirements. This ongoing control can permit GPs to pursue longer duration, value-added management strategies and the more attractive long-term valuations that can follow.
Schroders believes that the dynamics of CV transactions may transform the broader buyout market, with CV deals having the potential to take up to 8 percent of mid and large-cap deal flow that would otherwise be transacted through secondary buyouts.
Even with the benefits discussed above, and notwithstanding the high level of LP participation in CV deals, many investors remain committed to traditional exits. In a recent Institutional Limited Partners Association webinar poll, more than 60 percent of participants said they preferred liquidity from traditional exits, even if such traditional exits were effected at a discount to CV valuations. This apparent concern, likely driven by the shadow of apparent conflicts of interest, suggests that strategic sales and IPOs will always remain crucial components in the PE playbook. Secondaries and CV deals, however, now have a definitive and likely permanent seat at the PE exit table.
