Continuation funds face mounting criticism over self-dealing and inflated valuations. Private equity specialists however see reality as more nuanced.
Once invented as a niche mechanism to extend holding periods, continuation funds are now a staple in the General Partners (GPs) toolkit. Critics, however, have grown louder. Egyptian billionaire investor Nassef Sawiris recently called them “the biggest scam ever,” while some others likened them to “Ponzi schemes”. The core accusation? GPs are selling assets to themselves at inflated valuations to avoid facing the judgment of the open market.
But among professional advisors operating between Limited Partners (LPs) and GPs, the view is more nuanced. Two experts who routinely scrutinize these transactions, Costas Constantinou, partner at Oaklins Netherlands, and Romain Begramian, Managing Director of GP-Score, a firm that assesses PE firms’ operational value creation capabilities, agree that risks are real, but dismiss blanket condemnations as simplistic.
“Continuation funds aren’t inherently bad,” Constantinou, who leads Oaklins’ valuations advisory team, told Investment Officer. “But they require a high bar of transparency and fairness that isn’t always met.”
As the private equity industry matures and fundraising slows, continuation funds are being deployed with increasing frequency to roll over aging assets. The deals allow GPs to generate liquidity events while holding onto companies they claim have more room to grow. Critics argue these transactions create perverse incentives, especially when there is no truly independent buyer to set the price.
“Valuation is always a range,” Constantinou noted. “You can land at 70 or 100, and both might be technically defensible. But if you’re cashing out old LPs and invite new ones in, the price has consequences. It needs to be rigorously justified.”
Constantinou said Oaklins has lost mandates for fairness opinions after pushing too hard in the due diligence process. “If something doesn’t make sense, we call it out. Not everyone wants that.”
IRR doesn’t tell you how the sausage gets made
Where Constantinou interrogated the fairness of the price, Begramian questioned whether the GP’s operational story holds up. His firm, GP-Score, doesn’t look at the internal rate of return (IRR) or return multiples. Instead, it audits the GP’s capacity to execute its value-creation strategy.
From an LP perspective, the problem isn’t just price. It’s opacity. “Most LPs don’t have the time or resources to dig into the operational capabilities of each GP,” said Begramian.
“IRR doesn’t tell you how the sausage gets made,” he said. “We score managers on their value creation planning, execution, and monitoring. We ask to see post-acquisition plans, internal dashboards, and all kinds of hard evidence, even talk to portfolio companies. A lot of what GPs claim isn’t fully backed up.”
According to Begramian, continuation funds are accelerating a long-overdue conversation about accountability. “They force the GP to explain what value they’ve created, and what more they plan to do. That’s where weak managers get exposed.”
Scrutiny is falling behind in Europe
Both Constantinou and Begramian agreed that the power imbalance between GPs and LPs is real. GPs often set the terms, commission the fairness opinions, and present data that LPs are expected to trust.
“It’s a big issue if the same advisor auditing the books or advising on tax is also doing the fairness opinion,” said Constantinou. “That creates pressure to play nice. Ideally, it’s the investment committee or supervisory board commissioning the opinion, not the GP.”
Still, regulatory oversight remains uneven. In the UK, the Financial Conduct Authority has raised broader concerns about valuation practices in illiquid assets. The SEC in the US has gone further, introducing rules that require GPs to obtain fairness opinions in continuation fund transactions and disclose conflicts more clearly.
But on the continent, scrutiny remains limited. “Europe tends to react late,” said Constantinou. “Only after a scandal hits the headlines do regulators pay attention.”
As the continuation fund market grows, so does the need for clearer standards. Begramian is pushing for industry-wide scoring to help LPs compare managers objectively. Constantinou, meanwhile, advocates for more rigorous fairness procedures.
“These deals can work,” Constantinou said, “but only if process integrity is sacrosanct. If you’re selling a company from one of your funds to another, you’d better make sure you’re not just kicking the can down the road.”
The message from both men is clear: the problem isn’t continuation funds themselves. It’s the lack of credible, independent checks in a system where GPs too often police themselves.
“You can fool investors once, maybe twice,” said Constantinou, “but if the price doesn’t hold up, and the asset doesn’t perform, people will notice. And next time, they won’t write the check. If this really were a Ponzi scheme, investors wouldn’t be so eager to invest in it.”