A record year for M&A in 2025, with over 50,000 deals worth approximately $5 trillion,1 was driven by mega-deals that masked the slowest year for the middle market since 2020.2 Dealmaking in the middle market lifted in some sectors toward the end of 2025 and M&A momentum has continued into the new year—signaling a potential resurgence in 2026. Still, there lacks definite indicators to pinpoint the fortune of middle market M&A activity.
When evaluating the middle market dynamic, however, there are signs that indicate the dealmaking environment is changing entirely. Liquidity solutions—such as continuation funds—offer LPs liquidity while allowing PE firms to hold onto their assets until traditional dealmaking conditions improve. But, as continuation fund activity continued to rise in 2025, it is becoming evident that these transactions are not just a means to hold onto an asset for a few more years.
The secondary market reached new heights in 2025, with a record $226 billion of transaction volume.3 A bit under half of this—$95.8 billion—was driven by continuation fund activity. Continuation vehicles have evolved from a sporadic mechanism delaying traditional exits to a viable exit opportunity of their own.
Continuation Vehicle Appeal
When evaluating the reasons a PE firm may choose to roll over an asset into a continuation fund, it is important to distinguish that, rather than a way to hold onto struggling assets, these vehicles may appeal to sponsor’s best assets because they can keep accruing value without giving up the asset to another PE sponsor. For example, a sponsor may not wish to part with an asset that has already made a 2.5 or 3x multiple in just four or five years; by rolling it into a continuation fund capitalized by new investors, they can continue to reap the benefits of the growing asset while providing existing LPs with liquidity.
In total, there were a record 147 continuation fund-related exits in 2025, up 18.5% from 2024 that smashed the 2023 record by 47.6%. Since 2021, the most active year for middle market M&A, continuation fund-related exits have skyrocketed 234%.4
Entering 2026, continuation funds—just a niche tool a few years ago—have evolved into a key asset management strategy. The PE industry has increasingly been receptive to these vehicles, not just as a mechanism for LP liquidity, but as a method for value creation of already valuable assets that sponsors wish to hold onto. Single asset continuation vehicles (SACVs) have performed largely in line with buyout funds but with lower return dispersion. 5
Market Dynamic
Middle market U.S. PE exits have generally trended down since 2021, with just 972 deals between $25 million and $1 billion in 2025 compared to 1,535 in 2021, 1,207 in 2022, 1,054 in 2023 and 1,129 in 2024.6 Continuation fund exits have been on an inverse trajectory over the same period, emerging as a common secondary exit tool over the last couple years.
Median U.S. PE hold times jumped from 3.4 years in 2024 to 4 years in 2025, while median PE exit holding times dipped from 6.4 years to 6 years. Notably, median hold times—which remained flat around 3 years from 2015-2023—have risen in each of the last two years. 7
While traditional exit activity and secondary exits are not directly correlated, their inverse relationship since 2021 helps paint the picture for middle market struggles despite a plethora of mega deals in 2025. Continuation vehicles played a large role in GP-led secondary market transaction volume in 2025, exceeding expectations with $106 billion of volume. 8
Credit: The Next Opportunity
Once a small component of the continuation fund market, credit has materialized as an emerging player, representing around 15% of 2025 continuation fund volume. As the credit market matures, credit secondaries become a more viable option for GPs looking to return liquidity to investors. The private credit market is huge, potentially reaching $5 trillion by 2029,9 lending itself to sizeable secondary market potential.
More credit sponsors are now targeting continuation vehicles, although the reasons vary from private equity given different, and lower risk, return profiles. Credit continuation fund rationale is often more about structuring to re-ignite higher returns. Credit investors who were getting large returns from initial fund leverage may find their returns dwindle over time. A continuation fund allows existing investors to cash out and subsequently enables new investors to put on new leverage, optimizing capital structure to get a sizeable return in the new continuation fund.
