SUNANDO ROY – On Banking, Finance and Society

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GP‑led continuation funds have moved from niche structuring tools to a mainstream liquidity and value‑maximisation mechanism in private markets, but they are inherently conflicted because the GP effectively sits on both sides of the deal. The core challenge is to design a process and set of terms that do not allow the GP’s desire for more time, new economics, or fresh capital to come at the expense of fair value and genuine choice for existing LPs. ILPA’s recent guidance frames this as a question of alignment: continuation fund transactions should maximise value for existing investors and ensure that rolling LPs are no worse off than if the transaction had not occurred, while providing a true status quo option on economic terms.ilpa+3​

From a governance perspective, the first step in managing conflicts is early and substantive engagement with the Limited Partner Advisory Committee. Before a process is launched, the GP should present to the LPAC a clear rationale for why a continuation fund is being proposed instead of alternatives such as a fund extension, minority sale, strip sale, or third‑party exit, including an honest assessment of how each option would treat existing LPs. ILPA’s framework now expects GPs to bring all transaction‑related conflicts to the LPAC—crystallisation of carry, stapled financing, GP co‑investment, affiliate bids, and any changes to the waterfall or fee base—and to seek a formal LPAC vote on waiving those conflicts, even where the LPA might technically pre‑clear them. This not only surfaces potential misalignments but also creates a record that conflicts were identified, mitigated and approved, which is increasingly important under the conflict‑of‑interest expectations of regulators such as the SEC.dlapiper+3​

Independent advice and valuation are the second pillar of a credible process. A well‑run continuation transaction will typically involve an experienced secondary adviser mandated to run a competitive, well‑documented process that is designed to maximise value for the selling fund as a whole, not just to secure a convenient solution for the GP or lead investor. That adviser should canvass the market, solicit and compare bids, and help shape a pricing and syndication outcome that can withstand LP and regulatory scrutiny, with the key parameters shared with the LPAC. In parallel, ILPA and many institutional investors now view independent third‑party valuations and, in larger or more complex deals, fairness opinions as essential tools to address the “GP is negotiating with itself” concern around pricing; these opinions should be made available to all LPs so that both selling and rolling investors can evaluate whether the cash price and roll valuation are within a defensible fair‑value range.vestlane+3​

Information symmetry and decision timelines directly shape how fair the roll‑versus‑sell choice feels to LPs. Continuation vehicles ask investors to underwrite concentrated exposure to specific assets, often with bespoke upside and risk profiles, so standard fund reporting is not enough; the GP should provide asset‑level business cases, historic valuation data, details of any recent equity or debt transactions, a summary of bids received in any auction or market check, and a realistic projected hold period and exit strategy. ILPA’s guidance stresses that once terms have been agreed, all LPs should have access to the same information as LPAC members, rather than facing an informational hierarchy that forces them simply to “trust the committee”. On timing, many LPs have been frustrated by compressed election windows; in response, best practice has coalesced around minimum decision periods of around 30 calendar days (or 20 business days), with flexibility for investors subject to statutory or investment‑committee constraints, coupled with robust Q&A channels and data‑room access so that LPs can make a genuinely informed decision rather than being nudged into rolling by fear of missing out.bennettjones+4​

Economic terms are where the conflict becomes most tangible, because this is where value can be silently transferred between selling LPs, rolling LPs, new investors and the GP. A core ILPA principle is that continuation fund transactions should maximise value for existing LPs, which in practice means that the cash price offered to sellers must be grounded in credible market and valuation evidence, and the valuation at which rolling LPs continue should be at the same headline price, unless a clearly justified and transparently documented market discount applies. The “status quo option” requires that rolling LPs see no increase in management fee rate, no broadening of the fee base, no increase in carry rate, no lowering of the preferred return, and no GP‑favourable changes to the waterfall. Any crystallisation of carry should be heavily scrutinised: ILPA’s position is that carry attributable to selling LPs should be rolled into the continuation vehicle rather than paid out in cash, and that there should be no crystallisation for rolling investors, which keeps the GP economically aligned with those who choose to continue rather than allowing it to de‑risk at their expense.ropesgray+4​

Fairness in LP/GP allocation is the final leg of the stool and often the most sensitive. In principle, existing LPs should have priority to roll at least their pro rata share of exposure before significant capacity is allocated to new investors or GP affiliates, particularly when the asset is regarded as a crown jewel and the continuation fund is likely to be oversubscribed. Where demand exceeds supply, a neutral and transparent pro rata scaling mechanism applied across all investors—including the GP and its affiliates—helps to avoid perceptions of self‑dealing. At the same time, all GP and affiliate commitments, including co‑investment or purchases in the secondary process, should be on terms no more favourable than those available to third‑party LPs, and any special economics, governance rights or fee arrangements granted to lead secondary buyers must be disclosed to the broader investor base. When paired with robust governance, independent valuation, and a genuine status quo option for rolling investors, these allocation practices turn continuation funds from a lightning‑rod for conflict and regulatory scrutiny into a workable tool that can balance GP and LP interests under increasing market, ethical and supervisory expectations.ilpa+5​

LP / GP allocation and conflict mitigants

Terminology

• Continuation fund / continuation vehicle: A new fund or vehicle formed to acquire one or more existing portfolio assets from an older fund, usually to extend holding periods and provide LP liquidity options.moonfare+2​

• GP‑led secondary: A secondary transaction initiated and run by the GP (rather than LPs) involving restructuring, fund‑to‑fund transfers, or continuation funds.pathwaycapital+2​

• LP (Limited Partner): Investor in the fund providing capital but not managing day‑to‑day investments, typically institutions such as pension funds or insurers.ilpa​

• GP (General Partner): The fund manager responsible for making and managing investments and typically entitled to management fees and carried interest.ilpa​

• LPAC (Limited Partner Advisory Committee): Body of selected LPs providing oversight and consents on conflicts, valuations and other reserved matters under the LPA.deallawyers+2​

• Carried interest (carry): Performance‑based share of fund profits paid to the GP after returning capital and preferred return to LPs.debevoise+1​

• Crystallisation of carry: Conversion of unrealised carry into realised carry, often at the point of transferring assets into a continuation fund, potentially allowing a GP cash‑out.dlapiper+2​

• Status quo option: ILPA concept requiring that existing LPs can roll into the continuation fund without worsening of economic terms (fees, carry, hurdle, waterfall).ilpa+2​

• Stapled commitment: Additional primary commitment (often to a new fund) made by secondary buyers in connection with a GP‑led secondary or continuation fund transaction.stblaw+2​

• Fairness opinion: Independent adviser’s written opinion on whether the financial terms of a transaction (e.g., price offered to selling LPs) are fair from a financial point of view.mercercapital+2​

references

1. Institutional Limited Partners Association, Continuation Funds: Considerations for Limited Partners and General Partners (May 2023).ilpa​

2. ILPA, Continuation Funds (online guidance and resources, 2024).ilpa​

3. ILPA, Guidance on GP‑Led Secondary Fund Restructurings (Apr 2019).ilpa​

4. ILPA, New continuation fund guidance sets parameters for well‑run transactions (press summary).ilpa​

5. Bennett Jones, Continuation Funds: ILPA Updated Guidance (2023).bennettjones​

6. Clifford Chance, ILPA releases continuation fund guidance (2023).cliffordchance​

7. DLA Piper, ILPA issues Guidance on Continuation Funds (2023).dlapiper​

8. Proskauer, Regulators’ Increased Focus on GP‑Led Secondaries and Continuation Funds (2023).proskauer​

9. Mercer Capital, Third‑Party Fairness Opinions in Continuation Funds (2025).mercercapital​

10. Vestlane, Private Equity Continuation Funds: Trends and Best Practices (2025).vestlane​