Continuation Vehicles in Private Markets in India

Once a niche strategy, general partner (GP)-led continuation vehicles have become a pivotal tool for providing liquidity and extending the life of investments. They now represent a substantial share of the private fund secondary market.

Fees

According to Morgan Lewis’ Annual Continuation Vehicles Report 2025, analysing 44 continuation vehicles from Q1 2024 to Q1 2025, 93% of continuation vehicles charged a management fee of 1% or less this year. Shifting from earlier years and driven by investor pressure and competition among GPs to attract capital, 1% or lower annual management fee on invested capital is becoming the market standard.

Carried Interest

The Morgan Lewis data shows that about 75% of continuation vehicles included a tiered waterfall where higher levels of carry (typically 20–30%) are paid if certain return thresholds are exceeded. Consequently, GPs can earn a higher carry percentage if returns surpass agreed benchmarks, which helps align GP incentives with investors’ outcomes. The willingness of LPs to countenance up to a 30% carry “top end” reflects a recognition that if an asset’s performance is very strong, GPs may merit a greater reward. We are therefore seeing leaner management fees for investors’ benefit with robust performance incentives for GPs when value is delivered.

Capital Commitment

Another aspect of alignment is the GP’s own capital commitment to the continuation vehicle. Typically, the GP rolls over all, or a significant portion, of any proceeds (including carry) generated by the sale of the asset to the continuation vehicle. In addition, it is typical for the GP’s flagship fund to invest in the deal on the buy-side alongside the continuation vehicle – with the GP’s commitment to that flagship fund being another source of alignment.

Governance Mechanisms

Nearly 70% of continuation vehicles launched this year include a key person provision, whereby the departure of certain individuals from the GP’s team triggers certain consequences. In addition, all continuation vehicles in the data included a right of the LPs to remove the GP for “cause” if it engaged in certain acts. To mitigate the GP conflict of interest in any dispute between a selling fund and a continuation vehicle, one or more “lead investors” are typically appointed who enforce certain rights on behalf of the continuation vehicle against the selling fund.

Duration and Structuring

Term length, and extensions, have become key negotiated points. A typical continuation vehicle has an initial term of around five years, with one or two years of possible extensions. 50% of continuation vehicles studied by Morgan Lewis this year had a 5-year term and 88% allowed for a two-year extension beyond the initial term, balancing the GP’s need for sufficient time to maximize the asset’s value with LPs’ desire for a reasonable investment horizon and a clear exit runway. The extension options (often in one-year increments) serve as a safety valve, used only if more time is needed or market conditions warrant a delay. Investors often negotiate approval rights or conditions around these extensions to maintain control over the vehicle’s duration. Further, discipline on exercising any such extension is reinforced by corresponding step-downs in the management fee (48% of continuation vehicles had a step-down of fees in the event of extensions to the initial term in the Morgan Lewis data).

Another notable structuring trend is the handling of follow-on capital and reserves. The Morgan Lewis report found that 84% of continuation vehicles prioritize the use of unfunded commitments for follow-on investments. Most continuation vehicles raise a reserve or “dry powder” alongside acquiring the asset, earmarked for value-enhancing activities like bolt-on acquisitions or growth capital for the portfolio company. For LPs, this provides comfort that the asset will not stagnate due to lack of funding, while it offers GPs the flexibility to execute the original investment thesis to completion.

Looking ahead

The continuation vehicle market for 2025 and beyond is expected to continue to expand. Core themes are unlikely to change, investors will continue to demand fair economics and transparency, GPs will use continuation vehicles to hold and grow great companies, and regulators will keep a watchful eye to ensure market integrity.

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