This article is a guest post by Alexander Stacy, a partner at Hudson Hill Capital. The views expressed are solely those of the author.

For years, continuation vehicles (CVs) have held a position in the private equity industry akin to that of a "lemon" in the used car market: they may look shiny when presented to potential buyers, but the seller knows all too well what issues lie under the hood.

However, with the rise of institutional investors focused on the private equity secondaries market—as evidenced by Swedish private equity firm EQT's recent $3.7 billion acquisition of Coller Capital, a leader in the secondaries market—CVs have transformed from "lemons" into a more valuable tool for the private equity industry. The drivers and pathways of this transformation merit in-depth analysis.

London-based Coller manages $50 billion in assetsand was founded in 1990, playing a pivotal role in building an increasingly efficient and institutionalized secondaries market. Through professionalized and standardized investment due diligence and valuation processes for proposed CV transactions, Coller has helped turn a tool once viewed as a "safe haven" for distressed assets and underperforming portfolio companies into a vital component of the private equity ecosystem.

The combination of a major private equity firm with a market-leading secondaries platformmarks a profound shift in the industry's perception of secondary transactions. In the past, continuation funds often signaled weakness on the part of the sponsoring general partner (GP); today, they are more often a reflection of investment success—EQT's multi-billion-dollar bet underscores its belief that this trend will persist.

CVs allow private equity firms to extend their holding periods for portfolio companies while offering existing limited partners (LPs) the flexibility to either cash out or roll their interests into the new fund. However, in the early days of the secondaries market, CVs carried a heavy stigma: the information asymmetry between sponsors and investors made them the go-to tool for distressed funds nearing the end of their terms to buy time and salvage underperforming holdings.

This further exacerbated a core conflict of interest: the fund's GP simultaneously serves as a fiduciary for both the continuation fund (the buyer) and the traditional fund (the seller). Moreover, GPs have strong financial incentives to initiate CVs, such as continuing to collect management fees, improving economic terms, and increasing equity stakes in assets they believe will outperform.

But a new generation of institutional secondaries investors has performed a critical function, beginning to transform this dysfunctional market into a highly efficient one: their specialized due diligence processes and independent valuation work have effectively leveled the information asymmetry inherent in CV transactions, enabling sponsors and new investors to reach pricing and terms on a fair-dealing basis.

As private equity fund holding periods continue to lengthen and attractive exit opportunities via public listings become increasingly scarce, the market's appetite for holding high-quality assets longer has also begun to reshape the composition of CV portfolios.

Institutions like Coller began proactively partnering with leading private equity sponsors to provide liquidity to early investors in top-performing portfolio companies. The narrative behind this new wave of CV transactions is starkly different from that of traditional secondaries deals, once again shifting the perceptions of both investors and sponsors.

This evolution directly addresses the classic "market for lemons" problem articulated by Nobel laureate economist George Akerlof. In secondary transactions, GPs have far greater knowledge of the quality of underlying assets than potential buyers. Without a credible verification mechanism, buyers will assume any asset being sold is a "lemon" and discount accordingly, thereby suppressing GPs' willingness to place quality companies into continuation funds.

However, by conducting independent, rigorous due diligence, systematically weeding out laggard assets, and seeking to support only "crown jewel" assets, specialized secondaries institutions like Coller have effectively solved the adverse selection problem. As a result, continuation funds have shed their historical stigma and are now a legitimate mechanism for extending holding periods of the highest-quality portfolio companies.

According to investment bank Jefferies, the private equity secondaries market has experienced explosive growth, with total secondary transaction volume reaching $162 billion in 2024, up 45% from 2023, of which GP-led continuation fund transactions totaled approximately $75 billion.

The number of CV transactions has also surged,accounting for approximately 19% of all private equity asset sales in the first half of 2025, up 60% from the first half of 2024。

KSL Capital's continuation fund established for Alterra Mountain Company in 2024—the operator of ski resorts such as Mammoth, Deer Valley, and Palisades Tahoe—vividly illustrates this shift. KSL raised over $3 billion from pension funds, sovereign wealth funds, and endowments to extend its ownership of this company it had cultivated for years.

A more liquid private equity ecosystem appears to benefit all participants. Through CVs, LPs in need of liquidity can exit smoothly; new investors can enter a mature asset with a decade of operating history at lower risk; and portfolio companies gain stable ownership and fresh capital.

In the past, CVs were about "buying time"; today, more robust CVs allow all participants to "buy into" the pursuit of upside gains.

When a market leader in independent secondaries due diligence is absorbed by one of Europe's largest private equity firms, it sends a clear signal: continuation funds are no longer a contingency plan, but a viable and planned exit path, deeply integrated into how mature sponsors think about portfolio lifecycle management.