Morgan Lewis released preliminary data showing that the vast majority of continuation vehicles feature both tiered carry and dual return metrics. Between Q1 2025 and Q1 2026, less than 80 percent of the funds it monitored employed carry waterfalls with tiered carry, often including a 100 percent GP catch‑up at each level. The firm shared the figures at its London Private Investment Funds Summit.

Tiered carry structures give managers a stronger incentive to hit performance thresholds before profits shift to investors, tightening the alignment between limited partners and general partners. Dual return metrics—such as hurdle rates and preferred equity—add an extra layer of protection for investors, ensuring that returns are only distributed after a certain benchmark is achieved. Together, these mechanisms reshape risk‑return dynamics in the secondary market in 2025.

The findings signal that continuation funds are leaning toward more sophisticated fee structures, which could drive higher upfront costs for investors while offering greater upside potential for managers. Firms that adopt tiered carry and dual return metrics may attract capital from investors seeking both protection and performance incentives. As the secondary market matures, these trends will likely influence fund pricing, investor demand, and regulatory scrutiny.