Continuation Funds on the Rise: Why Credit Rating Agencies Could Become Key Players in Private Equity’s Next Wave

Schroders Capital projects a fundamental shift in the private equity landscape. According to its latest analysis, the global market for continuation funds – often referred to as GP-led secondaries – is expected to quadruple over the next decade. The firm’s base scenario suggests that annual exit proceeds from such investments could exceed USD 300 billion by 2034, representing growth of more than 300% compared to 2024. Dr. Nils Rode, Chief Investment Officer at Schroders Capital, stated: “Even our conservative estimates point to a significant expansion of the market for continuation funds.”

The analysis stresses that this growth is not merely cyclical, driven by today’s challenging exit environment, but largely structural. As Rode explains: “Our analysis suggests that 80% of transaction volume in 2024 was based on sustainable, structural developments rather than cyclical effects.” Continuation funds, in his view, allow successful portfolio companies to pursue further transformation under the same fund manager without the disruption of a change in ownership.

Schroders Capital also highlights key advantages: lower fees compared with traditional buyouts, more predictable returns, and faster liquidity. These characteristics are particularly attractive for mid-market companies valued below USD 1 billion, where entry valuations are lower and opportunities for operational improvements or geographic expansion are more diverse.

Moreover, the very attributes Schroders Capital emphasizes – “predictable returns and faster liquidity” – are areas where ratings can add tangible value. A strong rating not only validates those claims but can also directly lower financing costs for continuation vehicles, making them more competitive compared to secondary buyouts. Rating agencies thus stand to position themselves as essential partners, helping private equity firms attract fresh capital while reassuring limited partners who seek both yield and security.

In addition, the fragmented nature of the lower mid-market opens further opportunities. Here, ratings can serve as a quality seal, enabling investors to differentiate between companies with genuine long-term resilience and those that simply benefit from short-term market conditions. By doing so, agencies can influence capital flows and play a strategic role in shaping the evolution of continuation funds as a mainstream segment of private equity.

In short, while Schroders Capital outlines the structural forces behind the surge of continuation investments, credit rating agencies can translate this growth into sustainable investor trust. Their role extends beyond measurement: they can actively shape transaction terms, reduce financing costs, and enhance transparency in a market poised for significant expansion.