What happens when a private equity firm can’t exit — sell to itself?

Private equity is living through an awkward moment: record hold periods, many portfolio companies stuck well beyond the typical five-year horizon, and traditional exit routes looking increasingly brittle. The Financial Times recently flagged this pressure — in H1 2025, continuation vehicles accounted for roughly $41bn of internally recycled assets (about 20% of industry sales), up ~60% year-on-year. The David Lloyd Clubs example — moved from one fund to another after buyers proved hard to find — is a clear sign of the market’s strain.

Below we lay out why firms are getting creative, whether those fixes actually work, and what better plays look like when exits are blocked.

A. Why such creative moves?

• Drying exit routes. IPO markets remain structurally challenged; companies are staying private longer where regulation and scrutiny feel lighter and management retains autonomy.

• Valuation mismatch. Buyers won’t overpay and sellers won’t accept steep discounts — a stalemate that incentivizes internal transfers.

• Expensive leverage. The era of cheap debt driving leveraged returns is over; high financing costs make traditional LBO exits harder to rely on.

• Local friction. In the UK, for example, exit volumes are down materially (this year’s declines follow a steep fall in 2024), creating a backlog of companies needing liquidity.
  
  

B. But does selling to yourself work?

Yes — in some ways.

• Continuation vehicles buy time: more runway to hit value-creation milestones and avoid forced disposals at fire-sale prices.

• They can provide liquidity options for limited partners who want to cash out while giving others the chance to roll into a new vehicle.
  
  

No — with important caveats.

• Repriced assets: the economics are often reset at lower valuations, which can compress the upside.

• IRR clock resets: rolling into a continuation vehicle typically restarts performance measurement, which is both a technical reset and a governance moment for LPs.

• Perception risk: repeated internal recycling can erode confidence among investors and potential third-party buyers about asset quality or exit discipline.
  
  

C. What are better alternatives?

• Carve-outs. Repositioning mature assets by separating business lines or units can create standalone, saleable entities and attract strategic buyers.

• Secondary buyouts. A clean handoff to another private buyer can be preferable where IPOs or trade sales aren’t viable.

• Early exit planning. Build optionality into the value-creation journey: plan for alternative routes (carve-outs, minority sales, earn-outs) well before the target exit window.

• Operational value creation. Double down on measurable, near-term EBITDA uplift levers to make an asset saleable across a broader set of buyer profiles.
  
  

Bottom line

Continuation vehicles are a pragmatic stop-gap in a market with jammed exits — they buy time and flexibility, but they don’t solve the structural problems. For GPs and LPs, the smarter play is to treat exits as a strategic continuum: design value-creation plans that preserve optionality (carve-outs, secondary markets, and operational fixes) so you’re not forced to improvise when the market tightens.