US SEC probes popular type of private equity fund as it steps up industry scrutiny, sources say

• CV transactions reached $106 billion in 2024, up from $70 billion in 2023, as rising interest rates and market volatility made traditional exits harder for PE firms
• The SEC is forming an informal 'working group' across divisions to enhance coordination on private credit market oversight, escalating scrutiny beyond routine examinations
• Private equity firms currently hold over 30,000 unsold portfolio companies, with CVs allowing them to transfer assets to new vehicles while giving existing investors exit options

SEC Investigates Continuation Vehicles Amid Growing Private Equity Scrutiny

The U.S. Securities and Exchange Commission's enforcement division is probing "continuation vehicles" (CVs), funds used by private equity firms to extend holdings of unsold assets, according to three anonymous sources. Investigators are examining potential conflicts of interest, asset valuations, and adequacy of investor disclosures, though specific funds under investigation remain undisclosed.

Key Market Data:

• Manager-led secondary transactions, primarily CVs, reached $106 billion in 2025, up from $70 billion in 2024, per Evercore
• Credit assets comprised 11% of CV deals in 2025, up from 5% in 2024
• PE firms currently hold over 30,000 unsold portfolio companies, according to Bain & Co.
• Global private credit market valued at approximately $1.8 trillion

Market Context:

Rising interest rates and geopolitical uncertainty have severely constrained PE exit opportunities. CVs allow managers to transfer assets from older funds (typically with 10-year lifecycles) into new vehicles, giving existing investors cash-out options while avoiding forced sales at discounted valuations.

Regulatory Concerns:

The SEC has established an informal "working group" since late 2024 to coordinate across enforcement, examinations, and investment management divisions on private credit oversight. SEC Chairman Paul Atkins recently disclosed fraud investigations into private credit firms. Critics highlight inherent conflicts where managers control both transaction sides in illiquid markets.

Legal Precedent:

The Abu Dhabi Investment Council sued Energy & Minerals Group in 2024 over alleged conflicted CV transactions, though a Delaware court dismissed the case and the deal closed in March 2026.

The escalation to enforcement-level investigation signals heightened regulatory concern about transparency and fairness in the rapidly expanding private markets sector.