Are GPs exploiting a loophole with continuation funds?

Hello,

This week, Sweden’s EQT confirmed it has raised $11.4 bn so far for its latest Asia fund, spotlighting India as a key driver of regional allocation. The firm joins a growing list of global GPs doubling down on India amid a worldwide slowdown.

Also, Titan (a Tata Group company) is acquiring a majority stake in Dubai-based jeweller Damas for over AED 1 bn, furthering its international ambitions. The deal strengthens the legacy watchmaker’s footprint across the GCC and marks one of its largest cross-border moves. 

Meanwhile, JSW Paints has sought CCI approval to acquire a 74-76% stake in Akzo Nobel India, a move that could make it the country’s fourth-largest paints player. 

And finally, Adani Group  will fully exit Adani Wilmar’s agri business in a $1.3 bn move. The strategic divestment reflects the conglomerate’s sharper focus on core infrastructure plays, and signals portfolio reshaping post-debt scrutiny.

I hope you enjoy this week’s roundup, and please do connect with me on LinkedIn to find out how I can help with your next M&A deal.

Let’s dive in.

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Market Trends

Late shoots and exits: Are continuation funds a loophole?

Once whispered about like a four-letter word among institutional investors, they’ve now gone mainstream. So much so, today, 14% of all PE exits are via continuation funds.

Originally conceived as LP-led liquidity solutions, enabling limited partners to sell out of their illiquid PE positions, we’re now seeing more and more GP-led secondaries. 

Their key innovation? Giving GPs a way to hold onto their best assets longer for more upside, while providing LPs with an option to cash out.

What’s causing the uptick?

India’s continuation fund market is in its infancy. Samara Capital kicked things off in 2021 by rolling over its stake in Sapphire Foods (QSR).  Leading PE player ChrysCapital followed in 2023 and  midsize-focused Multiples tested the waters in 2024, but these moves are rare.

They, however, reflect:

• Liquidity mismatches: Domestic institutional capital is still maturing; exits can be tricky even for winners.
• Better-performing portfolios: Holding on makes more sense if you’re sitting on a compounding asset.
• Global LP familiarity: Indian GPs now have the opportunity to work with LPs experienced with these structures elsewhere.
• Rising upside: Some assets are just too good to exit but regulatory constraints might force you to.

We can also observe several factors driving a greater sense of urgency:

• Global regulations. Pension and insurance capital is under pressure to rotate out of decade-old funds.
• Rebalancing. Some LPs think they may keel over — and must trim exposure to older vintages, or want sectoral or geographic reallocation.
• Dry powder ($200bn). That’s the amount secondary buyers are sitting on today, up 15x in a decade.
• Not just lemons. This isn’t a distressed-only strategy anymore. Sometimes, GPs want to hold a compounder.

How GPs use continuation funds

Like renewing vows, you liked the company enough to marry it once, and the market hasn’t changed your mind. Deals are available in the following flavours: roll half the portfolio forward; carve out one trophy asset; let in a new GP to take over, crystallise carry (proof that your money is where your mouth is) or the ‘super carry’ deals (GPs double down on performance incentives). 

But one can clash with original LP expectations and BPMs (business plan metrics). 

Are LPs happy?

Once considered ‘zombie funds’, continuation vehicles are no longer taboo. And LPs are becoming more accepting while LP advisory committees are now becoming thought partners. 

The questions LPs might ask:

• Is this just to delay an exit?
• Is there truly more upside?
• Is this asset being overvalued?
• Does the management have skin in the game (esp. as in India where governance risks linger)?

What next?

Globally, middle-market PE firms are struggling to raise fresh capital, so rolling the winners forward can seem an attractive solution. Indian investors are tuned into the potential benefits, while differences with developed markets remain:

• The Indian LP base is thinner and deals rely on global secondaries buyers.
• Regulatory clarity is, so far, limited (it’s early days).
• India still lacks the institutionalised ‘special situations’ fund market of the likes of the US or UK.

As sponsors recalibrate their exit strategies, continuation tools are becoming more recognised as a means to hold on to winners, lock in value, and build consensus with LPs.