The U.S. Securities and Exchange Commission’s enforcement division is investigating funds widely used by private equity firms and other asset managers to retain holdings they either cannot or do not wish to sell, as the agency intensifies its review of private markets, according to three people familiar with the matter.
In recent months, SEC enforcement staff have focused on a number of “continuation vehicles,” or CVs. They are examining potential conflicts of interest in these structures, how managers value the underlying assets, and whether disclosures to investors are sufficient and consistent. Reuters could not determine which specific funds are under review or what types of assets they hold. The enforcement scrutiny into CVs has not been previously reported.
Continuation vehicles have grown rapidly in popularity. Fund manager–led secondary transactions reached $106 billion last year, up from $70 billion in 2024, according to Evercore. Rising interest rates have made it harder for private equity firms to find buyers willing to match the high multiples paid for some companies, particularly during the pandemic era of cheap money. Geopolitical instability, policy uncertainty, and disruption driven by artificial intelligence have further constrained exits from private equity portfolios.
Traditional private equity funds have a finite life cycle, typically around a decade. CVs allow managers to bring in new investors and transfer assets from older funds into a new vehicle, extending the holding period while giving existing investors the option to cash out. As a result, the vehicles offer a way to return capital to investors without forcing the sale of assets at a deep discount in weak markets, to a competitor, or at a realized loss. CVs predominantly involve equity assets, although the share of credit assets is growing.
Close Coordination at the SEC
Since late last year, enforcement division staff have sought to build what the sources described as an informal “working group” with the examinations, investment management, and other divisions, to ensure closer coordination and information sharing on the opaque private credit market. While SEC examiners have scrutinized private fund issues — including continuation vehicles — for some time, the escalation to the enforcement division and the cross-division collaboration underscore growing concerns among regulators about potential problems in private markets.
Managers say they typically obtain third-party opinions for CV deals. SEC scrutiny is not evidence of wrongdoing and does not always result in penalties or other action. At an event last month, SEC Chairman Paul Atkins said the agency is investigating allegations of fraud at private credit firms, without elaborating. Enforcement director David Woodcock also said at an event last month that the agency is “attuned to potential risks relating to liquidity, fees, valuations, and conflicts of interest” throughout the sector.
Market Oversight Intensifies
Regulators have increased oversight of private markets as they expanded over the past decade, but U.S. scrutiny has grown after problems at alternative asset manager Blue Owl and at BlackRock funds late last year sparked fears that cracks may be emerging in private credit. Blue Owl and BlackRock declined to comment.
Private credit broadly describes a range of nonbank business lending, although a large portion of the market consists of direct loans to private equity portfolio companies. Estimates of the global private credit market’s size vary, but it is generally agreed to be worth at least $1.8 trillion.
Private markets boomed thanks to a decade of near-zero interest rates, which made financing deals cheap. Many private equity firms are now struggling to profitably offload companies. PE firms currently sit on a backlog of more than 30,000 unsold portfolio companies, according to June data from Bain & Co. Rolling them into CVs allows private equity firms to bring in new investors and return some capital to their original backers.
Fund manager–led secondary transactions, of which CVs make up the majority, totaled $106 billion last year, up from $70 billion in 2024, according to Evercore. Credit accounted for 11% of those transactions last year, up from 5% in 2024.
Critics have flagged the potential for conflicts of interest because the investment manager sits on both sides of the transaction in what is usually an illiquid asset, creating incentives to skew valuations and raising questions about whether managers are presenting the same information to buyers and sellers.
Some disputes have surfaced in public. The Abu Dhabi Investment Council (ADIC) last year filed a legal complaint against a CV launched by Energy & Minerals Group (EMG), accusing the private equity firm of attempting to force a conflicted sale. A Delaware court dismissed the case, and the CV deal closed in March. A representative for EMG said the transaction had been analyzed with advisory firms and that the claims were “baseless and without legal merit.” ADIC declined to comment.
Reporting by Chris Prentice, Dawn Kopecki, and Isla Binnie in New York. Editing by Michelle Price and Matthew Lewis.