The SEC's reported move to probe continuation vehicles, the fund structure increasingly used by private equity managers to roll over assets they can't sell through traditional assets, should send a strong signal for financal advsors steering clients into such private-market opportunities.
According to investment bank Evercore, fund manager-led secondary transactions – the lion's share of which came through continuation vehicles – hit $106 billion in 2025, up from $70 billion in 2024. Separately, Bain & Co. reported that as of June, PE firms were facing a backlog of roughly 33,000 unsold portfolio companies globally, increasing the pressure to use continuaton vehiicles as a release valve in cases where a profitable external sale or IPO isn't an option.
Nick Tsafos, partner in charge of EisnerAmper's New York office, says the SEC's attention on continuation vehicles should push advisors consideriing those investments to do more homework through "independent due diligence teams, carefully vetted manager lists, and a deep understanding of the portfolio companies and their industries.
"These investments should be evaluated with the same rigor as any other investment opportunity, and advisors must be prepared to walk away if the opportunity does not align with their investment criteria," Tsafos told InvestmentNews.
In a recent interview, Tsafos said he isn't surprised regulators are circling given how the structure is built. He highlighted the unavoidable tension that exists in recommendations of a continuation vehicle, where the same investment advisor typically represents both the investors selling out of the original fund and the new investors buying in.
"How is the investment advisor that's selling and continuing on making sure that the selling investors are getting proper value for the risk they took, and the [incoming] investors are getting the best price for the risk that they're taking on?" Tsafos said. "That is a tightrope."
In remarks at the MFA Legal & Compliance 2026 Conference, the SEC's Division of Enforcement Director David Woodcock, who took on the post in May after the sudden March exit of Margaret Ryan, said the agency is "attuned to potential risks relating to liquidity, fees, valuations, and conflicts of interest – not only at the private fund adviser level but throughout the distribution chain." He added that firms must ensure their representatives understand the products they sell relative to clients' risk profiles.
According to Tsafos, the torrent of deals now flowing through the continuation vehicle space makes it statistically inevitable that the SEC would be on the lookout for bad actors.
"You're going to have continuation vehicles on one end of the bell curve that do very well, and investment advisors that do everything right," he said. "And then you have the other end of the bell curve that's not so good. You can't treat everybody the same, but the numbers tell you that you have to pay attention."
From Tsafos' perch, he sees much of the current wave of CVs tracing back to deals struck in 2021 and 2022, when ultra-low interest rates and a capital bonanza pushed private equity valuations higher. Fast forward around half a decade, and he said many exits have failed to materialize as expected, forcing managers engaging in secondary transactions to review whether the original investment thesis they held coming in still applies.
"Does the thesis need to be changed – not because of interest rates, but because of what technology is bringing to this opportunity?" Tsafos said, referring to the impact of artificial intelligence. "And if it is [enhancing the opportunity], how are you ascribing value to that for the investors that are selling? Because now they're selling based on the old thesis, and the new investors are buying on the new thesis, how do you marry that together?"
To help close the gap, he said independent reviews should go beyond financial modeling and look into the underlying business. In one example reported by the Wall Street Journal, he said domestic automakers are pivoting toward military applcations in response to a push by the Pentagon, effectively pushing existing investors into a business strategy they aren't necessarily willing to back.
Asked what advisors should press for beyond a fund manager's own marketing materials, Tsafos said high-net-worth clients, family offices and ultra-high-net-worth investors need to do more than kick the tires and go through the materials offered up by the dealer.
"If they are important enough to this investor, they should be asking a lot of tough questions," he said. "I'm not saying the investment advisor is not giving them all the information. But investors need to really go in and do their due diligence. It shouldn't just be taken at face value."
Relatively thin early disclosures aren't necessarily red flags, Tsafos said. Because the process of education around a continuation vehicle is likely to be time-consuming for the manager, they may wait for the pool of prospective investors to drain a little before opening a portfolio company to full diligence.
"I've seen it where an investment advisor said, 'Okay, we've got seven, eight, ten investors' – and within three or four weeks, that's down to three or four," he said.
On the question of valuations, Tsafos acknowledged there are natural limits to how reliable marks can be, particularly for continuation vehicles in fast-moving sectors like AI-driven stock sectors.
"That's the billion-dollar question," he said. "In more mature industries, you have a basis for valuation. But with what we're seeing in technology right now, it's very hard to say a 22-times multiple is right, 21 times is a steal, and 23 times is overpaying. There's just not enough data, and understanding the depth of the management team is tough."
For all the hopes and fears swirling around AI in the wealth management space, Tsafos is convinced that the technology is not exactly the displacing force some have made it out to be, especially when it comes to regulated industries like the investment business.
"When things go bad, investors or customers of investment advisors, or clients of accounting firms, are not going to go back and sue AI – they want to sue people," he said. "Regulators want to hold people accountable; they're not going to hold AI accountable. I think AI is going to enhance the abilities of the people providing the investment advice or the accounting, but it's going to have to be closely monitored."
In a constant fight over control of clients, the financial advice industry has a long history of such allegations and disputes.
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