The FT is good in explaining this point – one that appeals to my common sense. If you are selling companies to a fund you control, it is you not others who decides what the company is worth. How long can that go on before someone calls your valuation. Here they explain

Private equity firms made record use of a controversial tactic to cash out their clients by selling assets to themselves in the first half of the year, as they struggle to find external buyers or list holdings.

Buyout groups used so-called continuation funds — in which a private equity group sells assets from one of the funds they manage to a fresher fund also managed by the firm — to exit $41bn of investments in the first six months of 2025, according to a report by investment bank Jefferies.

That was equal to a record 19 per cent of all sales by the industry, and 60 per cent higher than a year ago. The increasing reliance of private equity groups on continuation funds to exit older deals comes as the industry contends with a prolonged downturn in initial public offerings and takeover activity that has squeezed the amount of cash returned to investors.

I think the word I’m looking for is “liquidity”, if you can’t cash in your investor at some clear point in the future then you need long time horizons, a lot of trust and great governance. I heard a lot about this the other night, you can watch the great and good of private market funds arguing there wasn’t a liquidity problem here.

Click here for debate on liquidity

I wasn’t convinced , nor was Con Keating who sat next to me and it comes down to me to there needing to be a buyer for every seller and that is not currently being achieved. There simply isn’t a functioning market. The FT reports sure fitted commentators from the private sector.

“We’re in our third or fourth year of low distributions, the exit environments are challenging and the IPO market is dormant,”

Said Todd Miller, Jefferies global co-head of secondary advisory. Continuation funds give investors the choice to roll over their investment or to cash out. For their private equity sponsors, they allow the firm to keep portfolio companies beyond the typical 10-year life of a fund, and to crystallise performance fees on the assets sold while collecting a steady stream of management fees from the new fund buying the investments.

So it’s working for the fund manager , it keeps investors invested and some chance to cash out.

But all is not quite as rosy as the sales people would have it and the FT know it.

Continuation funds have drawn concern from some investors as a tactic for recycling capital, even as their popularity has surged, with an increasing number of institutional investors opting out of them. Beckelman [a commentator] said continuation funds would continue to gain popularity as a way for so-called financial sponsors to maintain ownership of their best investments, although the structure is also used to house less well-performing assets.

This I find worrying and all the more so for all the fund managers agreeing that I shouldn’t. I will be looking at continuation funds and staying away from investing in private funds (including LTAFs). I am with Toby Nangle who says that “fund of funds” carry costs that retail investors could and should avoid.

If I get access to private markets, it will be from my workplace pension and I will only get my pension paid from a pension that avoids fund of funds which include the continuation variety. Direct investment sounds a good way to cut out the intermediation risk that this has a whiff of!