Investors Warn of ‘Rot in Private Equity’ as Funds Strike Circular Deals

A recent New York Times investigation explores how private equity firms are adapting to a prolonged slowdown in traditional exits. With higher interest rates limiting deal activity and a large number of portfolio companies remaining unsold, firms have leaned more heavily on continuation-style transactions, in which assets are transferred between funds managed by the same sponsor.

Supporters of these transactions argue they allow firms to hold high-conviction assets longer while offering investors optional liquidity. However, some institutional investors and public pension funds have expressed concern that these structures can introduce conflicts of interest and obscure the true performance of underlying assets, particularly when valuations are set internally and exits are delayed.

The article highlights several cases where companies transferred into continuation structures later struggled under increased leverage and changing market conditions, prompting renewed debate about transparency, alignment, and risk management in private equity. As the use of these vehicles expands, investors are reassessing how such strategies fit within the broader private markets ecosystem.

Investors Warn of ‘Rot in Private Equity’ as Funds Strike Circular Deals – The New York Times