Continuation Funds: What They Are, What They Mean in the EU, and What Ukraine Should Do

What are Continuation Funds?

A continuation fund (sometimes called a continuation vehicle) is a special type of private investment fund. The idea: a fund manager takes one or more assets from an older private equity fund (legacy fund) that haven’t been sold yet, sets up a new fund, brings in fresh capital, and transfers those assets into the new fund. Investors in the old fund can either sell their shares (get liquidity) or “roll over” into the new fund.

These structures have become more popular recently because the usual exit routes (IPOs, mergers & acquisitions) are less reliable or slower. Continuation funds give flexibility and liquidity.

What’s Special about Continuation Funds in the European Union

The EU has some particular features and regulatory frameworks that make continuation funds both promising and challenging in a European context:

1. Regulation of Alternative Investment Funds (AIFs)
   In the EU, funds that are not standard public mutual funds are regulated under frameworks like AIFMD (Alternative Investment Fund Managers Directive). These require transparency, risk management, disclosure and supervision. Continuation funds must meet these standards. If these rules are strong, continuation funds can benefit from legal clarity, investor protection, and greater trust.

2. Strong Focus on Investor Protection and Conflicts of Interest
   Because continuation funds involve the same manager being on both selling and buying side, conflicts of interest are real issues. EU regulators and institutional investors expect processes such as independent valuation, fairness opinions, competitive bidding for new investors, and full disclosure.

3. Mature Secondary Markets and Institutional Investors
   Many EU countries have more developed private equity markets than Ukraine currently does: more institutional LPs (pension funds, insurance companies), more expertise, and more secondary market activity. That helps in structuring, pricing, due diligence.

4. Legal / Tax / Accounting Standards
   EU rules around cross-border investment, taxation, accounting and financial reporting are more harmonized (especially for member states). This gives more predictability for investors, which is very important when designing continuation fund deals.

5. Retail Access and Evergreen Funds
   One trend in Europe is growth of “evergreen” funds and structures that allow non-institutional (retail) investors in private markets, under regulated regimes. While continuation funds are more institutional in nature, these wider trends help increase interest, liquidity, and acceptance of such tools.

What’s Special for Ukraine

Ukraine is in a different starting position. There are both opportunities and obstacles, which mean that continuation funds in Ukraine must navigate more carefully.

Opportunities:

• Ukraine needs capital for reconstruction, modern infrastructure, energy transition, and business scaling. Continuation funds offer ways to preserve promising assets, bring new investment, and give exits or partial liquidity to existing investors.

• EU support frameworks (Ukraine Investment Framework, EU guarantees, etc.) are being put in place, which could help reduce risk and attract private capital. [Ukraine Investment Framework aims to mobilise large investment amounts, combining guarantees and blended finance] Enlargement and Eastern Neighbourhood+2Enlargement and Eastern Neighbourhood+2

• The political momentum toward EU integration will likely push regulatory and legal reforms, making more room for modern fund structures.

Obstacles / Challenges:

• The current law for investment funds in Ukraine is not fully aligned with European standards. There are shortcomings in transparency, fund structure, investor protection, regulatory supervision. voxukraine.org

• Legal & tax uncertainty. There may be unclear rules about valuation, transfer of assets between funds, exit taxes, foreign investor rights, cross-border regulation.

• Lack of developed secondary markets: fewer experienced LPs, fewer buyers for assets, less competition for pricing.

• Operational & capacity limitations: for example, fewer professional intermediaries, fewer independent valuers, weaker governance mechanisms in some cases.

What Ukraine Must Do: Scenarios for the Future

Here are three possible scenarios for how continuation funds could develop in Ukraine, and what needs to happen in each case.

What to Monitor & Implement Now

To make continuation funds work better in Ukraine, even under conservative or moderate scenarios, here are specific actions to take now:

• Pass or implement the draft law on investment funds (and related regulations) that align with EU best practices.

• Define clear standards for valuation and independent fairness opinions in continuation fund transactions.

• Create guidelines for disclosure of conflicts of interest and require them.

• Encourage international development agencies and EU institutions to support pilot projects and provide guarantees or blended finance to reduce risk.

• Strengthen institutional capacity: train regulators, independent valuers, legal/tax experts.

• Ensure tax code clarity: how are profits, transfers between funds, capital gains, foreign investor remittance, and related matters handled.

Conclusion

Continuation funds are not just a complex finance niche—they are increasingly important globally because they provide flexibility, liquidity, and a way to preserve value when traditional exit options are weak.

For the EU, continuation funds benefit from strong legal frameworks, institutional investor bases, and regulatory experience.

For Ukraine, there is significant opportunity - but only if legal, tax, and regulatory reforms happen, if investor protection is assured, and if international support is used thoughtfully.

Depending on how fast Ukraine moves toward EU standards and reforms, continuation funds could become a key tool in the country’s reconstruction, modernization, and integration into broader European capital markets.