The significance of specialism
Continuation investments are moving into the private equity mainstream, with the lower mid-market offering a particularly fertile hunting ground for specialist investors.
Autheurs
Continuation investments are becoming an increasingly important part of the private equity landscape.
Once viewed primarily as a restructuring solution for tail-end funds, these transactions are now increasingly used as a strategic tool. At their best they enable sponsors to retain ownership of their highest-quality assets, while extending value creation beyond the traditional fund lifecycle and offering a route to liquidity for existing investors.
In a keynote interview with Private Equity International, Christiaan van der Kam, Head of Secondary Investments, Private Equity at Schroders Capital, explains why the growth of this market is more than a cyclical response to a slow exit market, representing instead an important structural evolution.
He argues that this is especially the case in the lower mid-market, where there is a wide universe of potential investments offering attractive entry points, with continuation investments providing additional runway and capital to maximise the transformational growth potential of existing portfolio companies.
For investors, the attraction of these deals lies in gaining access to established companies with proven growth stories, while potentially benefiting from shorter durations, greater visibility over future value creation and more reliable return profiles compared to traditional buyouts. Continuity of ownership and management relationships can also reduce some of the disruption associated with a change of control.
As the market expands and attracts more capital, however, selectivity is becoming more important. Specialist expertise, rigorous due diligence and a clear understanding of the underlying company and its next phase of growth will remain central to identifying the most compelling opportunities.
Key takeaways
- Continuation investments are becoming a structural feature of private equity. Their growth is not simply a response to slower exits. Sponsors are increasingly using them to retain their strongest assets beyond the original holding period, extending and expanding the value-creation story.
- The market has significant room to grow. Our research suggests 30% or more of buyout portfolio companies could be potential continuation investment candidates, with the market forecast to more than triple to more than $330bn over the next decade.
- The lower mid-market offers a differentiated opportunity. Companies in this segment can have substantial scope for further growth, while the market is typically less crowded, with lower valuations and leverage than larger transactions.
- Single-asset transactions can provide greater selectivity. Focusing on individual companies allows investors to undertake full due diligence, assess alignment with the existing fund manager, and build portfolios around high-conviction businesses with clear value-creation plans.
- Specialist expertise matters as competition increases. More capital can support liquidity and market growth, but competition is also increasing, particularly at the larger end of the market. A specialist focus on lower mid-market transactions can provide access to a less crowded part of the opportunity set.
This article first appeared in the Secondaries special report published alongside the September 2026 edition of Private Equity International.
Click here to read the full article.
FULL TRANSCRIPT
The continuation investment market continues to mature. What is driving that trend?
There has been a lot of discussion as to whether the key driver for growth is simply a lack of distributions that is forcing sponsors to look for other ways to get liquidity, or whether there is something more structural occurring.
If you step back, though, it becomes clear the growth is actually a function of the fact that these transactions are disrupting the private equity market pretty fundamentally.
From Schroders Capital’s point of view, we are exclusively focused on the lower mid-market. I cannot think of a single sponsor in our portfolio that is not considering a continuation transaction. That was not the case even a couple of years ago.
This is not simply because of a lack of exits, but because continuation investments allow sponsors to hold onto their strongest assets beyond the original hold period. That shift is compelling and impacts the whole market. If lower mid-market sponsors are not selling their best assets, there are fewer deals available to larger funds.
Our research of around 2,600 realised buyout investments suggests that 30% or more of buyout portfolio companies are potential candidates for continuation investments, which means we could get to much larger market volumes than we are seeing today. Our forecasts show the market more than tripling from today’s figures over the next 10 years – and growth could be faster still.
For investors, demand is driven by the opportunity to invest in established, high-performing assets that can offer more predictable returns, shorter duration and lower risk than traditional buyouts. Continuity of sponsor ownership and management can reduce the disruption and ownership-transition risk associated with a change of control, while providing greater visibility into the next phase of value creation.
What risks and opportunities are created by new entrants coming to market?
Looking at the opportunities first, generally one of the constraints to market growth has been a lack of capital. As such, having more participants with more capital flowing in is good news, as it creates more liquidity for existing investors and allows more transactions to close.
Assuming new entrants are knowledgeable about secondaries – which we generally find them to be – then we welcome more players into the market.
On the other hand, concerns would be around increased competition and overcrowding. We are not too worried about that as we find most new entrants are active at the larger end of the market. There may be some increased competition leading to higher pricing and lower returns on the bigger deals, but that is less of an issue for lower mid-market continuation investments below €300 million.
Another future risk would be adverse selection, but we are not seeing any evidence of that to date.
What makes the lower mid-market such an attractive source of deal flow?
The lower mid-market is a complex space for firms that do not ordinarily invest in companies with earnings between €25 million-€100 million. Underwriting those companies alongside sponsors is not necessarily something that most secondaries firms are focused on.
We are specialists in this space, having been investing in the lower mid-market for at least 20 years. We have an active primary business and a co-investment business, so we are analysing companies in this strategy all the time.
We think lower mid-market companies are ideal for continuation investments because they are typically well-performing companies where the sponsors can see further growth with additional time and capital. Often, these companies have already doubled earnings from €10 million to €20 million, for example, with significant room to continue compounding, making them a natural fit as continuation investments.
The explosive growth you can see in lower mid-market private equity also fits very nicely with what a continuation investment can achieve, essentially extending the value creation story beyond what works with a traditional 10-year fund life where each investment has an expected hold period of four to six years.
The other appeal of the lower mid-market is it is less crowded, and we therefore see lower valuations and less leverage. Instead of buying companies at 15x EBITDA, we can buy them at 10x. People argue that these smaller companies come with more risk, but we are entering with a better lock into the value creation story, allowing us to generate potentially better returns.
Can you explain your preference for single-asset rather than multi-asset continuation vehicles?
Single-asset deals are our focus for a number of reasons.
First, the excitement around a continuation investment has to be the quality of the company, which automatically leads to single-asset deals in our view. There is a great opportunity to build a portfolio of 20 or 30 high-conviction companies, but that requires you to focus on transactions with clear rationale, strong alignment with the GP and the ability to conduct full due diligence to see the return potential.
Multi-asset deals allow you to achieve diversification at the transaction level, but with that level of diversification in a single deal comes a threat to quality. You conduct less due diligence per company and there will inevitably be some assets of lower quality. There may be some attraction in better pricing on multi-asset deals, but we do not currently see the market adequately pricing in those lower-quality assets.
What makes continuation investments such an appealing access point to private equity for LPs?
What is particularly compelling is the access to the highest-quality companies. If you are an investor in a secondaries fund, you could in theory get exposure to those companies through an LP position – but then you are part of a fund, and those better companies often get sold before the LP position in the fund is sold on the secondary market.
If you think about the continuing ownership story that underpins continuation investments, you are investing in companies with clear value creation theses with an existing manager, allowing you to underwrite a go-forward story with less risk and shorter duration. You therefore have the opportunity to generate more attractive returns than LP secondaries, with less risk.
When you think about your ability to due diligence and underwrite the value creation plan, that is more akin to buyout investing, but without the associated ‘blind pool’ risk as you are investing in existing assets with a proven growth story and GP-management team relationship.
To read Schroders Capital’s continuation investment research paper, click here.
Subscribe to our Insights
Visit our preference center, where you can choose which Schroders Insights you would like to receive.
Autheurs
Topics