The old VC mindset of "let your winners run" and waiting for an IPO is gone. Today's GPs must act as fiduciaries by creating liquidity plans, proactively orchestrating secondary sales, and navigating complex buyout deals with partial rollovers to generate returns for LPs.

The traditional venture model focused on buying and holding. In today's market, where companies stay private longer, a VC's fiduciary duty to LPs has evolved. It now includes proactively selling portions of high-valued private holdings in the secondary market to generate distributions (DPI), even if it creates friction with founders.

The traditional PE model—GPs exit assets and LPs reinvest—is breaking down. GPs no longer trust that overallocated LPs will "round trip" capital into their next fund. This creates a powerful incentive to use continuation vehicles to retain assets, grow fee-related earnings, and avoid the fundraising market.

A key evolution in private equity is holding top companies beyond the typical fund lifecycle. Continuation vehicles allow firms to retain their "trophy assets," offering liquidity to LPs who want to exit while allowing the firm and other LPs to benefit from continued growth.

Borrowed from private equity, continuation funds allow a GP to move a prized asset from an old fund into a new vehicle they still control. This provides liquidity to LPs in the original fund who can choose to cash out, while others can roll over and continue to ride the winner.

General Partners (GPs) have shifted from viewing secondary sales as an LP-driven nuisance to a strategic tool. They now facilitate liquidity for investors to maintain their reputation and use continuation vehicles to retain top-performing assets beyond a fund's original lifespan.

GP-led continuation vehicles are more than a liquidity tool; they are a strategic mechanism. They allow GPs to retain crown-jewel assets while attracting new, large-scale LPs, like sovereign wealth funds, who want access to high-compounding private companies not available through traditional M&A or IPOs.

In frothy markets with multi-billion dollar valuations, a key learned behavior from 2021 is for VCs to sell 10-20% of their stake during a large funding round. This provides early liquidity and distributions (DPI) to LPs, who are grateful for the cash back, and de-risks the fund's position.

Originally designed in private equity post-GFC to manage single assets, the continuation vehicle is now being applied to the private credit market. Its primary use case has shifted to liquidating entire funds, providing a novel exit route for LPs in funds that have extended beyond their expected life.